Property Types Office
July 1, 2008
By: Paul Rosta, Senior Associate Editor
Despite growing indications of softness, Manhattan’s office leasing market continued to hold its own during the first half of the year, according to Cushman & Wakefield Inc.’s mid-year analysis.
“For the last nine months we’ve been waiting for the other shoe to drop, and it hasn’t dropped,” noted Ken McCarthy (pictured), managing director of research for the firm’s New York City metropolitan area region, at a briefing this morning.
Job losses in the financial services sector--Manhattan’s largest tenant category--will likely increase in the second half of 2008. Many forecasts place the number of financial sector layoffs at between 25,000 to 50,000, and those cuts will ripple through the local economy, triggering more cuts. How much office space returns to the market this year will depend on the severity of the layoffs, McCarthy explained.
Meanwhile, leasing proved surprisingly resilient in Manhattan through the first two quarters. Tenants took down about 11.5 million square feet of office space, only a slight drop from the 11.8 million square feet tallied by this time last year, noted Joseph Harbert, Cushman's chief operating officer for the New York City region. A bump in big leases was the key to keeping the market steady. Twenty-one deals of at least 100,000 square feet were recorded in the first half, up from only 13 at the same time in 2007.
“What we’re going to keep our eyes on is what’s happening in that middle market,” Harbert said--in particular, leasing in the 50,000 to 100,000-square-foot range, which has dipped markedly this year. Moreover, leasing velocity in the second quarter dipped slightly from the six-year average for the quarter--to 3.7 million square feet from the 4.1 million square feet average.
Financial services firms stayed relatively quiet on the leasing front, accounting for only 14.1 percent of leases rather than the more typical one-third share. Insurance companies, in particular, helped pick up the slack. Manhattan’s overall office vacancy rate continues to inch up, rising to 7.1 percent during the second quarter, a 1.8 percent year-over-year increase. All three major submarkets are experiencing vacancy growth--Midtown (7.1 percent), Midtown South (5.9) and Downtown (7.7).
Yet rents continued to edge up despite the vacancy bump. Asking rents are up about 7 percent from the first quarter, to $71.59 per square foot, and Class A asking rents in Midtown Manhattan reached a record $92.30 per square foot. Harbert attributed the apparent contradiction to the prices for new space coming on the market, which are higher than prices for space coming off the market. Not all submarkets are equal, however; Downtown Manhattan office rents have stayed basically flat at about $50 per square foot this year.
Further complicating the picture, spreads between asking and taking rents are widening. A year ago, that spread would typically be 5 to 10 percent. Today, taking rents could be 10 percent to 15 percent below asking rents, and landlords are offering increased concessions and free rent to compete for tenants, reported Franklin Speyer, Cushman's vice chairman for Midtown office leasing.
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By: Paul Rosta, Senior Associate Editor
Despite growing indications of softness, Manhattan’s office leasing market continued to hold its own during the first half of the year, according to Cushman & Wakefield Inc.’s mid-year analysis. “For the last nine months we’ve been waiting for the other shoe to drop, and it hasn’t dropped,” noted Ken McCarthy (pictured), managing director of research for the firm’s New York City metropolitan area region, at a briefing this morning.
Job losses in the financial services sector--Manhattan’s largest tenant category--will likely increase in the second half of 2008. Many forecasts place the number of financial sector layoffs at between 25,000 to 50,000, and those cuts will ripple through the local economy, triggering more cuts. How much office space returns to the market this year will depend on the severity of the layoffs, McCarthy explained.
Meanwhile, leasing proved surprisingly resilient in Manhattan through the first two quarters. Tenants took down about 11.5 million square feet of office space, only a slight drop from the 11.8 million square feet tallied by this time last year, noted Joseph Harbert, Cushman's chief operating officer for the New York City region. A bump in big leases was the key to keeping the market steady. Twenty-one deals of at least 100,000 square feet were recorded in the first half, up from only 13 at the same time in 2007.
“What we’re going to keep our eyes on is what’s happening in that middle market,” Harbert said--in particular, leasing in the 50,000 to 100,000-square-foot range, which has dipped markedly this year. Moreover, leasing velocity in the second quarter dipped slightly from the six-year average for the quarter--to 3.7 million square feet from the 4.1 million square feet average.
Financial services firms stayed relatively quiet on the leasing front, accounting for only 14.1 percent of leases rather than the more typical one-third share. Insurance companies, in particular, helped pick up the slack. Manhattan’s overall office vacancy rate continues to inch up, rising to 7.1 percent during the second quarter, a 1.8 percent year-over-year increase. All three major submarkets are experiencing vacancy growth--Midtown (7.1 percent), Midtown South (5.9) and Downtown (7.7).
Yet rents continued to edge up despite the vacancy bump. Asking rents are up about 7 percent from the first quarter, to $71.59 per square foot, and Class A asking rents in Midtown Manhattan reached a record $92.30 per square foot. Harbert attributed the apparent contradiction to the prices for new space coming on the market, which are higher than prices for space coming off the market. Not all submarkets are equal, however; Downtown Manhattan office rents have stayed basically flat at about $50 per square foot this year.
Further complicating the picture, spreads between asking and taking rents are widening. A year ago, that spread would typically be 5 to 10 percent. Today, taking rents could be 10 percent to 15 percent below asking rents, and landlords are offering increased concessions and free rent to compete for tenants, reported Franklin Speyer, Cushman's vice chairman for Midtown office leasing.
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