2013 Mahnattan Office Space Market Round Up…
The Manhattan office space market moved steadily toward recovery throughout 2013. Although at year-end the market had not yet returned to pre-Great Recession highs, when vacancies were as low as 5.8 percent and rents averaged $68 per square foot, the office market is stronger than it’s been in the past four years.
2013 ended better than it began. Demand for office space outpaced space that was returned to the market. Space availability – space becoming available but not yet on the market – was down ½ a percent year-over-year to 11.7 percent. Space available direct from the landlord was slightly above 50 million square feet while available sublease space dipped below 10 million square feet (9.8 million), a few hundred thousand square feet less than where it was at year-end 2012. Total sublease space currently comprises 19.4 percent of all available space, a rate slightly better than what is considered market equilibrium, which is when sublease space comprises 20 percent and direct space from landlords comprises 80 percent of total availability.
The facts to remember however are that overall available supply of office space is two million square feet less at year-end than it was at the beginning of the year, and that overall asking rent in Manhattan ended the year at $60.57 per square foot, up 8.1 percent since year-end 2012.
Concern that rising rental rates would rise more, unleashed demand in 2013. Leasing activity for the year reached a healthy 35.9 million square feet, a 25-percent increase over the 28 million square feet leased in 2012 and well above the 10-year 30-million-square-foot average.
Large tenants made significant real estate commitments in 2013; the number of transactions over 100,000 square feet was 50, compared to 42 in 2012. Though more than half of tenant transactions in 2013 were renewals or expansions in their current locations, some market-affecting new leases were signed. Hudson Yards, the mega-development project on the far West Side of Manhattan between 28th and 42nd streets, secured two major tenants for its South Tower: L’Oreal signed a 420,000-square-foot lease and SAP, a large software manufacturer, signed a 115,000-square-foot lease. In Midtown, SONY Corporation sold its 550 Madison Avenue headquarters early in the year, with plans to relocate to 515,000 square feet in 11 Madison Avenue in the trendier Midtown South district located between 24th and 25th street.
But Downtown is where most of the action was in 2013. Law firm Jones Day, a longtime tenant of 222 East 41st Street, signed a 330,000-square-foot lease at 250 Vesey Street. The advertising and PR company, GroupM, is consolidating several of its Midtown offices and plans to move 2,400 employees into 516,000 square feet at 3 World Trade Center. GroupM’s commitment to anchor 3 World Trade Center will allow developer Larry Silverstein to move forward with financing and construction of the 2.5-million-square-foot tower scheduled to be completed in 2017.
Activity in Downtown heightened in 2013 as tenants priced out of some Midtown submarkets sought out lower rents, bringing total leasing transaction volume Downtown to 9.1 million square feet, which accounted for 25.2 percent of overall leasing activity in Manhattan in 2013, an increase of 62 percent over 2012, when it accounted for 19.9 percent of overall activity.
Barring unforeseen events we expect increased tenant interest Downtown to continue in 2014 as construction completion on the World Trade Center and Fulton Center (the new downtown transportation hub) nears, and before rents catch up to the rest of Manhattan. Which will happen. But tenants priced out of Downtown are already looking even farther south to Brooklyn…