Leasing Velocity Likely to Carry Through This Year

NEW YORK CITY-Manhattan’s office market went from strength to strength in the fourth quarter, amassing 7.5 million square feet of leasing deals for the hottest three-month period since Q3 2006, Cushman & Wakefield’s Joseph Harbert said at a press briefing Tuesday. The C&W year-end report forms a consensus with research from other leading brokerages: the nation’s leading office market is leading the pack in rebounding from the downturn, although at this stage Manhattan is hardly alone in recovering.

That 7.5-million-square-foot quarterly tally—a shade less than half the 12-month total for 2009—might have been even larger if a number of sizable deals that were expected to close during Q4 actually had. Partly as a result, “We expect that velocity in the first quarter is going to be probably about the same rate,” said Harbert, COO for the New York region. Manhattan’s full-year tally for 2010 was 26.3 million square feet, up 61% from the 16.3 million square feet leased during ‘09.

The one fly in the ointment as 2011 progresses, Harbert said, would be that the leasing market’s currently dizzying pace turned out to be the result of “incredible” pent-up demand from major tenants that had put their occupancy planning on hold during the economy’s trough. Should job growth numbers fail to improve, he said, there could be a “slight flattening” of leasing velocity.

Over the course of the past year, the vacancy rates in Midtown and Midtown South declined while Downtown’s increased, according to a December snapshot from Jones Lang LaSalle issued earlier this month. For Midtown, vacancy dropped from 14.3% in December ’09 to 12.2%, while Midtown South reached equilibrium, falling from 11.2% to 9.1% during the same time period. However, while Harbert noted that Downtown leasing velocity “held its own” during the past year, JLL reported a year-over-year increase in vacancy from 10.9% to 12.8%.

In its Q4 national office market report, Cassidy Turley on Monday noted that Manhattan experienced 1.9 million square feet of positive absorption. That was more than half the 3.6 million square feet of positive absorption seen in the Northeast during the quarter and more than one-fifth the nationwide tally of nine million square feet, according to Cassidy Turley. CB Richard Ellis said Tuesday that Manhattan's overall absorption rate increased "dramatically" year-over-year to 5.3 million square feet from negative 11.04 million square feet at the end of '09, while the availability rate fell from 14.2% to 12.6% during the same period.

Nationally, Reis Inc. said the amount of occupied office space increased for the first time since early 2008, while office rents also experienced their first gain since Q2 of that year. Cassidy Turley said that 54 of the 80 US markets it tracks, including Manhattan, recorded positive demand during the most recent quarter.

Asking rents in Manhattan’s three submarkets haven’t caught up with leasing velocity as yet. At the end of Q4, they averaged $54.34 per square foot, compared with $72.97 per square foot in Q3 ’08, according to C&W data. Yet Harbert noted that Midtown is once again starting to see more deals of over $100 per square foot, while net effective rents rose 7% from Q3, suggesting a shift in the balance of power from tenants to owners.

On the investment sales side, Harbert noted that velocity in Manhattan more than tripled from the trough of ’09, climbing to $13.6 billion for last year from $3.5 billion in ’09. That’s still below the rolling five-year average, although C&W EVP Helen Hwang pointed out that if 2007 were taken out of the equation and debt transactions were factored in, the ’10 total might come closer to that for a typical year.