NEW YORK CITY—A new report by Marcus & Millichap on the 2014 office market reveals that a surge in leasing by technology firms in Brooklyn and Queens—due to the boroughs offering lower rents than Manhattan as well as better proximity for employees—will put office vacancy in those two outer boroughs at just 6% by year-end.
However, the report reveals, a shortage of office inventory in Brooklyn and Queens has many tenants moving into smaller industrial buildings that can be refurbished to meet their needs with little effort.
Meanwhile, as office vacancy continues to tighten across the five boroughs, property owners will be able to lift asking rents again this year for a fifth consecutive year.
Construction wise, developers are on track to bring 3.8 million square feet online, increasing stock by 0.6%, a notable slowdown from the 5.6 million square feet delivered last year. This year’s deliveries are projected to open approximately 60% leased, Marcus & Millichap forecasts.
In terms of the vacancy rate, strong demand for office properties combined with a decrease in construction around town will create downward pressure of 50 basis points to 10.5% on net absorption of 6.5 million square feet. Last year, vacancy also dipped, by 40 basis points.
Meanwhile, asking rents will rise by 5.7% this year to $53.25 per square foot as conditions tighten. In 2013, average asking rents for marketed space rose 5.5%.
Employment growth is slated to be modest. NYC added a total of 80,300 positions last year, leaving job growth forecasts at a 2.2% increase, with the creation of 90,000 new positions this year. Driven largely by hiring in the professional and business services sector, employers in the primary office-using sectors will add 35,000 jobs.