C&W: Manhattan Office Leasing Up 35% as Offshore Capital Chases Assets

Class A office properties are commanding nearly $1,300 per square foot and leasing volume hit 16.7 million square feet during the first half.

As the nation’s real estate markets start to get their midyear report cards, Manhattan office properties are enjoying strong leasing and global attention from investors, according to Cushman & Wakefield Inc.

In the office investment market, “The real news is that international buyers are driving prices in 100 percent of New York deals,” said Janice Stanton, senior managing director for capital markets, at a briefing on Wednesday.

The United States is viewed as the world’s safest haven for investment capital, and Manhattan is the market most coveted by sovereign wealth funds and other institutional players. Cross-border capital is involved in between 21 percent and 24 percent of investment sales, and the prices reflect it. Class A office properties in Manhattan are commanding nearly $1,300 per square foot, up from $941 per square foot in 2008, Stanton noted. “When the capital lands here, they don’t want to invest $100 million or $200 million,” she said. “They want to invest billions.”

Many deals are taking place off market, as sellers wait for an attractive offer rather than putting their assets up for sale, Stanton added.

Office leasing turned in an equally robust first half. Volume rose 35 percent during the first half of the year to 16.7 million square feet, the best first-half performance since 2011. That total also exceeds the 10-year rolling average of 6 million square feet. A major factor is the uptick in leases of 100,000 square feet and up—25 so far this year, compared with 18 during the first two quarters of 2013. The biggest of the city’s three major submarkets, Midtown Manhattan, enjoyed a 23 percent increase in volume and accounted for 9.3 million square feet of new activity, more than half the total. Midtown prices have edged up about $1.30 per square foot during the first half to $70.82 on average. Leasing momentum continues, even though Manhattan has lagged the national average in office job creation for the past 18 months, said Don Noland, managing director for research. Nevertheless, Manhattan has regained about 134 percent of the office jobs lost during the recession, thanks in large part to growth in its information and technology sectors.

That said, Cushman & Wakefield detects a fundamental shift in the Manhattan office market. “We believe at Cushman & Wakefield that the epicenter is moving west, south and downtown,” reported Bruce Mosler, chairman of global brokerage. With 8.2 percent vacancy, and a 6.2 percent rate for Class A properties, Midtown South continues its 26-quarter reign as the nation’s tightest central business district, reported Gus Field, a Cushman & Wakefield vice chairman. Though prices have declined about $2.40 per square foot during the first half to $60.17, average rents have jumped more than $8 per square foot since the first quarter of 2013.

As in Midtown and Midtown South, average prices Downtown remained stable during the first half, ending the second quarter at $49.21. Nevertheless, the submarket picked up 3.7 million square feet of new leases during the first half, and 42 percent of that activity represented relocations from elsewhere in Manhattan. Mosler attributed much of that growth to the technology, advertising, media and information companies known collectively as the TAMI industries. “These folks are all about the live-work-play environment,” he added.