Cushman & Wakefield today released mid-year statistics for the Manhattan commercial real estate market that shows that new leasing activity reached nearly 12.4 million square feet, up 11.1% year-over-year.
The healthy leasing activity at the mid-year point of 2013 was met with a 10.4 percent overall vacancy rate, an increase of 1.3 percent from last quarter. That increase can be largely attributed to new construction, including 55 West 46th Street, 250 West 55th Street and 51 Astor Place, as well as available space entering the market.
The overall average asking rent in Manhattan increased 5.0 percent year-over-year to $61.81 per square foot. That marks the first time since May 2009 that the overall asking rent has surpassed $60 per square foot. The Manhattan class-A direct asking rent totaled $68.31 per square foot, an increase of 2.1 percent year-over-year.
“We’re in a stable market with strong confidence indicators,” said Ron Lo Russo, President of the New York Tri-State Region. “We’re on track for a healthy leasing year.”
A healthy pipeline in several core leasing industries is a confidence indicator, said Lo Russo, referring to an increase year-over-year in financial services tenants in the market as a result of lease rollovers and an increase in technology, advertising and media & information (TAMI) tenants in the market.
There has also been an increase in triple digit rents this year. A total of 36 transactions with base taking rents of $100 or more have been completed thus far in 2013. In comparison to last year, 35 transactions were completed for all of 2012.
All three major Manhattan submarkets had increases in new leasing activity year-over-year by the mid-year point. The technology sector continues to be a big growth area for Manhattan, while the financial services sector remains flat.
“Technology and tourism remain important economic drivers for the City, but with financial employment flat the local economy is not running at full speed,” said Ken McCarthy, Chief Economist.
Midtown has seen healthy activity the first six months of 2013, with an increase of 17.6 percent in new leasing year-over-year. Of the nearly 12.4 msf of new leasing completed overall in Manhattan, more than 7.6 msf of that activity occurred in Midtown. Within the submarket, Grand Central (1.3 msf), 6th Ave/Rock Center (1.2 msf), and Times Square South (1.0 msf) were the neighborhoods that received the most activity through six months of the year.
“Midtown is stable and healthy with the top tier surging,” said Melissa Bazar, Executive Director.
Midtown closed with a vacancy rate of 10.8 percent and an average asking rent of $68.20 per square foot, which is up 2.6 percent year-over-year. The class-A asking rent closed at $73.63, up 2.7 percent year-over-year.
While Midtown is having a strong start to the first half of 2013, Midtown South continues to be the hottest market.
“It’s not just a nine to five,” said Jamie Katcher, Senior Director.
Tenants want to live, work and play in Midtown South, according to Katcher, referring to the increasing total housing units, population growth, number of schools and restaurants in the submarket.
Midtown South continues to be the tightest Central Business District in the nation, with a vacancy rate of 7.2 percent, up slightly from last quarter and 1.1 percent year-over-year.
Total leasing activity in Midtown South increased 3.4 percent year-over-year, with an average asking rent of $59.46 per square foot, which is up 20.3 percent year-over-year and represents the most significant increase of the three major Manhattan submarkets. Additionally, the class-A asking rent closed at $75.63 per square foot, exceeding the Midtown class-A asking rent for the first time since C&W started tracking the market. The increase in the Midtown South class-A asking rent, however, reflects new construction entering the market and driving average rents up. Additionally, the Midtown South market is considerably smaller than the Midtown market.
The Downtown market continues to experience healthy demand from Midtown and Midtown South tenants. Referred to last quarter, approximately 20 percent of the Downtown market now consists of technology, advertising, media & information tenants. That’s a change from 2003, when financial services accounted for a third of all occupied space in the submarket. The financial services sector now only accounts for approximately 7.4 percent.
“The migration continues,” said Frank Cento, Executive Director.
At the midway point of 2013, Downtown closed with a vacancy rate of 11.6 percent, up from 8.0 percent last quarter and 2.7 percent year-over-year. The increase in the vacancy rate can be largely attributed to space from Brookfield Place/World Financial Center entering C&W’s statistical sample (C&W Research includes space vacant within a six-month time frame).
The average asking rent increased 14.7 percent year-over-year to $45.94 per square foot. The class-A asking rent totaled $50.74 per square foot, which is up 12.0 percent year-over-year and represents the largest class-A increase of the three submarkets.
The retail market continues to be strong in Manhattan. High street retail, especially along Upper Fifth Avenue, continues to thrive as three flagship deals with Valentino, Ralph Lauren and Carter were signed during the second quarter.
“These high profile leases only tell half the story,” said Steven Soutendijk, Senior Director. “The market has been buoyed not only by mega lease transactions, but also by incredible activity by food and beverage operators in secondary spaces in primary retail submarkets.
The year-to-date leasing by industry reveals that food users/bars accounted for 34 percent of leasing activity at the mid-year point of 2013. The apparel industry accounted for 21 percent.
Helen Hwang, Executive Vice President, NY Capital Markets Group, discussed Manhattan sales volume and cited that the market is being led by large transactions greater than $100 million, a change from 2012, in which it was dominated by middle market transactions.
“Mega deals are back!” said Hwang.
A total of 83 transactions have been completed thus far this year, with an average deal size of $178 million. That compares to 309 transactions completed all of 2012, with an average deal size of $86 million.