New York Market Overview
- Total Manhattan Class A Office vacancies increased from 9.8 % vacant to 10.0 % vacant
- Total New York City Office vacancy increased from 8.4 % vacant to 8.6 % vacant
Despite being one of the wealthiest places in the nation and a shopping mecca for 50 million plus tourists, Manhattan still has more vacant retail space than anyone can count. This is caused by Landlord seeking higher rents than tenants can profitably operate.
The two emerging centers for tech office tenants in the city are the Manhattan corridor spanning 14th Street through 42nd Street, and Downtown Brooklyn. Tech firms are looking for a central location and high-speed bandwidth in the building. They are increasingly interested in older properties with character. Downtown Wall Street as an office market has proven less appealing to those companies than previously expected.
The average price of air rights in Manhattan jumped 47 percent year-over-year to $305 per square foot in 2013. As Air rights prices rise it is encouraging developers to build taller buildings. Gary Barnett’s Extell Development did the most air rights deals of any developer last year.
Shared office space is one of the hottest subsectors in New York City commercial real estate. Local startup firms to international corporations are renting locations in Manhattan office buildings to rent out to tenants seeking fully furnished, temporary digs. WeWork, one of New York’s fastest-growing shared-space firms, may be in talks to take an additional 500,000 square feet at the Brooklyn Navy Yard, which would be its ninth location in the city and first outside of Manhattan.
Urgent-care facilities have been popping up across the city in spaces long occupied by retailers. The clinics, which serve as an alternative to a doctor’s office or emergency room, are making up for the diminishing presence of other commercial sectors.
With technology firms eating up space in older loft-like buildings at a rapid rate, rents in formerly affordable office spaces have been going up, making it difficult for nonprofits and arts organizations to find affordable deals. In the first quarter of 2014, Manhattan commercial rents rose 7 percent from the corresponding period five years ago. Meanwhile, rents in Midtown South rose up 29 percent within the same period.
Driven by low vacancy rates, Lower Manhattan office landlords have raised monthly rents by 4 % since the January 2014. The influx of technology companies into the area has played a key role in the rising rents citywide. Not surprisingly, the Midtown South office market is a veritable tech haven that boasts the lowest vacancies in the city, around 6 percent. Asking rents are $63 per square on average in the neighborhood, a 5 percent increase year-over-year. Meanwhile, Midtown asking rents rose by 7 percent to $74.27 per square foot.
Downtown landlords took advantage of the area’s growing popularity by re-pricing about 1.5 million square feet of the 12.2 million square feet available in the first quarter of 2014. The vast majority of this space, about 1.43 million square feet, was priced higher.
Affordable office space in Lower Manhattan is running out. As technology, media and fashion companies are moving in, the area is seeing a swift decline in availability of Class B and C office space. Last month, 4.3 million square feet of Class B and C office space was available, that is 45 % less than in 2011.
High-end restaurants are making a push on 57th Street, targeting billionaires and foodies alike. The most recent restaurants to go to Midtown is the Kingside, an American eatery at 124 West 57th Street, and the Wayfarer, a seafood-centric dining room at 101 West 57th Street.
Plaza District office rents are rising quickly, due to a lack of available space on the upper floors of trophy office towers. The Plaza District has asking rents of around $130 per square foot, up $30 per foot from the fourth quarter of 2013. So far there have been 18 deals with starting rents north of $100 per square foot this year, compared to only 13 at this time a year ago.
Some of the most valuable office leases inked in Manhattan’s Midtown South in the last year were with technology firms. Among them were Twitter signing at 245-249 West 17th Street, IBM’s Watson Group at 51 Astor Place and Facebook at 770 Broadway.
Class A office spaces larger than 100,000 square feet in Midtown South tumbled to their lowest availability rate in more than seven years, while asking rents around Manhattan continued their steady climb. Manhattan Class A office rents hit an average ask of $73.77 in the first quarter, a 5.6 percent year-over-year uptick from $69.81 in the first quarter of 2013. Vacancy rates dropped to 10.4 percent from 11.8 percent, while the borough reported an absorption rate of 1.5 million square feet. Vacancy is declining, rental rates are increasing, but they are not skyrocketing.
