Manhattan's FIRE Sector Still Has Fire

NEW YORK CITY—With all of the talk about the TAMI sector—technology, advertising, media and information—dominating the office leasing environment, the more traditional players still have pride of place. Judging by the first-quarter numbers, “TAMI is here for good,” but the FIRE sector still is responsible for the largest share of leasing activity at 40%, Colliers International's Joseph Harbert said at a Q1 media briefing Tuesday.

As a case in point, the quarter's largest leasing deal occurred in the FIRE sector: MetLife's 539,299-square-foot renewal and expansion at 200 Park Ave. Only one of the biggest Q1 deals occurred in the TAMI sector, and it represented a renewal and expansion within another longstanding tenant class for Manhattan: advertising, in the form of the 520,918 square feet that will be spoken for by Publicis Groupe at 1675 Broadway.

On the whole, Q1 suggested a softening in the leasing market, even if a temporary one. Colliers data show that overall Q1 leasing was 8.3 million square feet, which is off 1.8% from the previous quarter and 30.1% below the year-ago period. Yet Harbert, president of the Eastern region for Colliers, noted that it represented the sixth consecutive quarter in which Manhattan office leasing surpassed the five-year average velocity.

Despite this, it was also a quarter of negative absorption, due mainly to large blocks of space coming onto the market. Q1 saw 1.4 million square feet of negative absorption, compared to positive 1.1 million square feet in Q4 2014 and positive 1.4 million square feet in the first quarter of last year.

Nonetheless, asking rents rose for the eighth consecutive quarter, averaging $67.62 per square foot. That's 1.7% higher quarter over quarter and 6.3% higher year over year.

By submarket, Midtown is still champion at $76.15 per square feet, topped by the Plaza District at $92.57 per square foot. However, Colliers data show that Midtown's increase from Q1 2010 has been far more gradual than that of either Midtown South or Downtown, both of which averaged in the high $30s five years ago, compared to just below $60 for Midtown at that time.

Since that time, Midtown South asking rents have increased steadily to $62.02 per square feet in Q1, while Downtown has gone through longer periods of nearly flat rental growth before beginning a slightly sharper ascent a year ago little more sharply to its present $55 per square foot. Both figures, however, are all-time highs for these submarkets, Harbert pointed out.

If leasing velocity in Manhattan has been stronger, investment sales during Q1 didn't reflect this. The quarter produced 10 office sales totaling $5.2 billion, which Colliers says is on pace to match or even exceed the post-recession high in 2013.

Q1 also established new high watermarks for average price per square foot in office properties, including $1,280 per square foot in Midtown, $1,077 per square foot in Midtown South and $970 per square foot in Manhattan overall. Cap rates also approached record levels throughout Manhattan. Robert Freedman, tri-state co-chair of Colliers, suggested at Tuesday's briefing that the retail component of office buildings was a factor in driving up pricing. “An over-exuberant retail market will contribute more to a spike in value than office,” he said.