The Mr. October Surprise for the October Manhattan Office Market

NEW YORK CITY—The big question going into 2018 was will office demand be able to keep pace with a growing supply accounting for new construction and existing buildings in Midtown/?

Colliers International recorded for the month of October Manhattan’s monthly leasing reached 3.97 million square feet. This was up from 3.12 million square feet in September, and up from 2.25 million square feet in October 2017.

“At 33.38 million square feet, leasing activity between January through October 2018 has surpassed full-year activity every year from 2006 through 2012, and 2015. If leasing in November and December continues at the same rate, full-year leasing would be the strongest since 2002,” says Colliers International’s executive director Craig Caggiano.

He attributes the healthy numbers to robust employment growth. From August 2017 to August 2018, New York City added 74,200 private sector jobs, a 1.97% yearly increase. He also points out that unemployment is low in the city—down .8 percentage points year-over-year, only .9 percentage points above a historic low of 3.4% in May 2018.

Average asking office rent in Manhattan for October was $76.57. That’s up from $75.36 in September and up from the year-over-year comparison to October 2017, when it was $72.03.

Managing director of research at Colliers, Franklin Wallach, highlights that last month the Midtown South submarket continued with increases in above average prices, including new construction and existing buildings. He cited 345 Park Avenue South and One Manhattan West.

“Last year, Midtown South Class A, Class B and Class C asking rents surpassed their Midtown equivalents,” says Wallach. “Now  we’re seeing Midtown South overall has an asking rent higher than Manhattan. That’s always a notable event.”

As of Oct. 31, 2018, Midtown South’s average asking rent was $76.92 per square foot. Manhattan’s average rent was $76.57 per square foot.

What do these numbers indicate for the rest of the year? Both Caggiano and Wallach have been tracking leases in the pipeline that could potentially close before the end of 2018. Leases that close in November and December are already well underway. Wallach adds during the last quarter it’s not a surprise to see some large transactions close. For some companies depending on when the fiscal year begins, they may want to get large leases signed and off the books by December 31, he explains.

Wallach adds October was an especially strong month for Downtown leasing activity which experienced a drop off in leasing in Q3 2018, where there were no leases Downtown over 100,000 square feet. But last month, three large Downtown leases closed. The City of New York renewed 422,264 square feet at 90 Church St., marking Downtown’s largest lease of the year. Cahill Gordon moved to 32 Old Slip, leasing 201,621 square feet, and the NYPD expanded to 110,000 square feet at 375 Pearl St.

But the real “Mr. October” was absorption. That’s what Caggiano found particularly hit a home run.

With the new construction, relocations have occurred with office tenants moving from Midtown to Hudson Yards and Downtown. “Those tenants leave big holes in the market,” says Caggiano. “Those spaces are coming into our availability right now and into 2019. The fact that we are able to absorb that availability because of strong, relatively stable leasing has been a very important market indicator.”

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