Office Rebound Keeps Up the Pace

NEW YORK CITY-Office leasing and investment sales year to date are up sharply across Manhattan, by 65.8% and 168%, respectively, Cushman & Wakefield said Tuesday in its third-quarter overview report. Similarly, Jones Lang LaSalle’s James Delmonte says in a release, “Manhattan is on target to end the year with positive absorption for the first time since 2007.” However, not everything’s trending upward: asking rents are continuing to decline, albeit more gradually, and here as elsewhere, more job growth will be needed to keep the momentum going long-term.

At 18.8 million square feet, 2010’s year-to-date office leasing volume in Manhattan is already ahead of the 2009 total of 16.3 million square feet. It’s even farther ahead of the ’09 YTD tally: 12.6 million square feet. During C&W’s quarterly media briefing Tuesday morning, Joseph Harbert, COO of the New York metro region, observed that the last time the market saw two consecutive quarters of more than six million square feet was in 2007.

The two growth areas this year have been deals of more than 100,000 square feet—of which there have been 30 YTD, with JLL putting the Q3 total at seven for Midtown alone—and those of less than 25,000 square feet. As a result, deals between those two extremes have comprised a smaller slice of the pie this year. Harbert noted that as space is absorbed, tenants will begin to compete for the larger available blocks, and C&W will keep an eye on that trend as it develops.

Bigger deals and increased volume aside, asking rents have not risen commensurately and in fact they’re continuing to erode in much of Manhattan. The average ask for Manhattan at the end of Q3 was $53.80, down from $54.31 at the end of Q2, C&W says. Depending on the submarket, the actual rent may be even lower: “You can do class A deals in the $30s Downtown,” Harbert said, although JLL puts the average class A for Lower Manhattan at $41.32 per square foot, up 6.7% from the previous quarter. This is in spite of the fact that the submarket added more than two million square feet of vacant space from three properties during Q3: 70 Pine St., 1 New York Plaza and 85 Broad St., the latter formerly occupied by Goldman Sachs. These vacancies were expected and large tenants reportedly are already eyeing the space.

The fact that rents are bouncing along the bottom will help keep leasing momentum going, says Delmonte, VP and director of research for JLL’s New York office. “Since the market appears to have bottomed, activity is expected to be brisk for the remainder of the year as tenants seek to take advantage of current conditions before a rebound begins,” he says.

That rebound may already be taking hold in the investment sales arena. C&W says YTD tallies across the three submarkets are $6.3 billion for Midtown, up 103.5% from the 12-month total for last year; $1.1 billion for Midtown South, up 370.2%; and $611 million for Downtown, up 213.3%.

Naturally, these huge percentage gains have to be set against a low baseline: the historic trough of investment sales last year. Nonetheless, Harbert says the renewed activity posits Manhattan as a primary investment target.

Looking at the macro-economy, Ken McCarthy, C&W’s managing director of research for the New York metro region, noted the still-sluggish recovery. “Like the rest of the country, New York had a very strong first four or five months” of 2010, he said Tuesday. “But like everywhere else, there has been a slowdown.” However, he added, a slowdown in growth still means growth, and in terms of restoring jobs lost during the downturn, “New York is outperforming the rest of the country.”