Harbert: “We're Definitely In a Landlord's Market”

NEW YORK CITY—The Manhattan office market continued its streak of solid quarters in Q3, with increasing asking rents, a decline in availability, and more 100,000-square-foot leases recorded Downtown than in the previous two quarters combined, according to new research from Colliers International.

Leasing fell off however, sinking below the 10-year rolling average for the first time since 2013. Overall Manhattan leasing activity for the third quarter of 2015 was 7.1 million square feet—down 12.8% from 8.1 million square feet in the second quarter—and 14.1% down year-over-year. The dip likely will be short-lived though, Colliers eastern region president Joseph Harbert predicted Wednesday at Colliers' quarterly briefing in Midtown.

“There are a lot of deals floating around right now and we expect a strong finish to the year,” he said.

But the market continued to tighten. At 9.7%—the lowest overall Manhattan availability rate since Q3 2008 —the rate declined from 10.1% last quarter and 10.2% a year ago. “With the overall Manhattan availability rate being where it is, we're definitely in a landlord's market,” Harbert declared.

Asking rents also showed great health. At $70.25 per square foot, the overall Manhattan asking rent surpassed $70 for the first time since 2008 and represented the tenth consecutive quarter of rising rents. The current rate is also 2.6% higher than last quarter's $68.47 per square foot and 6.5% above the $65.97 per square foot achieved a year ago.

“The Manhattan office market continues to perform well, backed by a strong local economy, a desire by talented employees to live, work and play here, and international investors who see New York as a safe haven and a relative bargain globally,” said Harbert. “We believe New York will continue this solid pace into 2016.”

Midtown posted 3.32 million square feet of leasing in the third quarter, down nearly 23% from 4.31 million square feet in Q2. However, Q3 leasing activity was 10.4% below average, marking the first time the submarket has experienced below-average leasing activity since the third quarter of 2014. Also surprising was the dominance of the FIRE sector, which with 46% of Midtown's leasing had two-times more activity than TAMI firms, Harbert said.

The availability rate fell to 9.6% from 10.1% in Q2 and the 10.6% realized a year ago while achieving its lowest level since the third quarter of 2008. Midtown also saw average asking rents rise to $79.57 square feet, up 2.1% from $77.93 per square foot in the second quarter and up 5.1% from $75.74 per square foot a year ago.

Midtown South continued its run as one of the nation's tightest markets. Leasing activity hit 2.3 million square feet, a 22% decline from three million square feet the previous quarter and a nearly 20% dip from 2.9 million square feet a year ago. However, leasing was 14.1% above the rolling ten-year average of two million square feet in the submarket's eighth consecutive above-average quarter.

Asking rent hit another all-time high—$65.32 per square foot—marking the 19th consecutive quarterly increase. Plaza district rents reached about $96 per square foot, Harbert noted, and Colliers predicts it will hit $100 by year-end. Midtown South's availability rate was 7.4%, down from 7.6% the previous quarter, hitting its lowest point since 2008.

Meanwhile, Downtown recorded the strongest quarterly improvements with three leases exceeding 100,000 square feet. The big deals helped boost overall activity to 1.4 million square feet, up more than 75% from 0.8 million square feet last quarter.

Still, Downtown leasing was 5.1% below the rolling ten-year average of 1.5 million square feet in the third consecutive quarter of below-average activity.

Average asking rent was $57.13 per square foot—another all-time high—up 3.7% from $55.07 per square foot the previous quarter and 10.5% from $51.70 per square foot year-over-year. Downtown's availability rate decreased to 13.3%, down from 14.1% in Q2.

On the capital markets front, nearly $22 billion in property trades have closed year-to-date, with $8 billion under contract and another $7 billion listed for sale. The prior peak occurred in 2007, which registered more than $30 billion in office trades. Pricing for Manhattan office building sales reached $937 per square foot, another record level.