Colliers: NYC's Submarkets All Gained in Q4

NEW YORK CITY—Colliers International's overall report on office leasing around Manhattan last year showed a super strong market and—as it turns out—each of the city's three submarkets also performed at high levels.

In Midtown, while increasing supply contributed to an uptick in availability rates, negative absorption, and decreases to average asking rents, 2014 was healthier than the prior year.

A number of large fourth quarter Midtown transactions contributed to 3.84 million square feet of leasing activity, a 16.1% increase over the 3.3 million square feet in the third quarter, but nearly 23% below the 4.97 million square feet of space leased a year ago. Full-year Midtown leasing was strong.

Fourth quarter absorption was negative 312,000 square feet, a sharp reversal from the positive 1.88 million square feet absorbed in the third quarter and the positive 795,000 square feet of absorption seen a year ago. While full-year absorption was positive at 1.2 million square feet, it was less than half of the positive 2.51 million square feet during 2013.

The average asking rent dropped to $75.74 per square foot, down 1.3% from $74.78 per square foot in the third quarter, the first time the average asking rent decreased since the first quarter of 2013.

Sustained demand for Midtown South space resulted in 2.94 million square of leasing in the fourth quarter, 1.9% greater than the 2.89 million square feet leased in the previous quarter and 33% higher than the 2.21 million square feet leased a year ago. For all of 2014, Midtown South recorded 13.02 million square feet of leasing, over 54% more than the 8.44 million square feet in 2013 and the highest total since 13.08 million square feet in 2005.

Meanwhile, Midtown South's availability rate fell to 7.9% in the fourth quarter, down from 8.5% in the third quarter and from 9.7% year-over-year. This was Midtown South's lowest availability rate since the 7.5% achieved in the third quarter of 2008 and the lowest of all three submarkets since 2010.

Midtown South's 929,000 square feet of positive absorption was a more than 20% increase from the positive 772,000 square feet in the previous quarter and a reversal from the negative 106,000 square feet recorded a year ago. In addition, full year positive absorption of 3 million square feet completely offset the negative 1.97 million square feet of absorption during 2013. This was Midtown South's strongest full year of positive absorption since 3.50 million square feet in 2010.

Midtown South showcased three of Manhattan's top leases this year, while crossing the $100 per square foot mark for the first time, with five transactions achieving that rate. Average asking rent increased 5.7% to $61.50 per square foot, up from the $58.19 the prior quarter and just over 11% higher than the $55.32 per square foot reached a year ago.

This marked the 16th consecutive quarter in which the average asking rent has risen in Midtown South—the longest period on record—while the fourth quarter level was only slightly below the highest-ever recorded $61.60 per square foot in the first quarter of 2008. It is likely that Midtown South average asking rents will soon surpass that level, as new office developments with above average asking rents are scheduled to be completed this year and owners continue to raise rates, according to Colliers.

Activity decreased somewhat Downtown. More than 1.5 million square feet of leasing was done but that's a 27.2% drop below the previous quarter's 2.09 million square feet and over 74% less than the 5.92 million square feet of leasing done during the same period in 2013. Full-year leasing of 7.98 million square feet in 2014 was 17.7% less than the 9.70 million square feet leased during 2013.

However, the availability rate declined to 11.7%, down from just over 12% the previous quarter and from nearly 16% percent year-over-year, marking the sixth straight quarter of tightening availability.

Downtown's positive absorption was 514,000 square feet, less than half of the positive 1.27 million square feet in the previous quarter but nearly 19% above the positive 433,000 square feet of absorption year-over-year. Further, full-year positive absorption of 4.24 million was a significant improvement over the negative 93,000 square feet of absorption in 2013.

“Midtown South continues to operate at record levels, while the evolution of Downtown and the Far West Side further set the stage for the decades ahead,” says Joseph Harbert, eastern region president for Colliers International. “In 2015, the overall inventory will likely increase, with new product coming online, but the impact to pricing may be offset by continued positive economic growth, a favorable investment sales market and landlord confidence across all three submarkets.”