New York Market Overview

Manhattan's office rents are declining more sharply than those in other U.S. markets, though it's probably due to a soaring multi-year run-up. Average Manhattan asking rents were $60.23 per square foot, down from $71.59 a year ago, or an almost 16 percent plummet.

Midtown leasing velocity beat its five-year average for the first time in 18 months while the availability rate of office space improved slightly for only the second time since late 2007. There was 1.58 million square feet leased in Midtown in July,up from 1 million in June, besting its 60-month average of 1.32 million square feet. The increase in leasing was attributed in part to the continued decline in rents. "The fact that pricing is getting to be more and more palatable just means that it takes the edge off... the amount of time that it might take for landlords and tenants to come to an agreement.

Although the top taking rent so far this year is an eye-popping $185 per square foot at Sheldon Solow's 9 West 57th Street, it is just one of only a handful of leases signed for $100 or more per square foot this year in a challenging leasing environment. New York City landlords signed just 12 leases with taking rents of over $100 per square foot through July 31, down from 66 at the same time last year an 80 percent drop. From 66 to 12 is a significant drop off, considering quite a few of those were renewals of captive tenants, and most were not for large deals.

The economic downturn has continued to pummel the luxury office market in Manhattan. Average asking rates for high-end office space dipped to $83.66 per square foot in spring 2009, from $102.85 per square foot in fall 2008. Over the last six months, average asking rents dropped by 18.7 percent.

The leading source of the sublease space now flooding the city's commercial office market is Goldman Sachs, which has put 597,000 square feet on the market at 77 Water Street. Barclays has put 456,842 square feet on the market at 277 Park Avenue. All together, sublease space in New York City has ballooned 139.2 percent since the second quarter of 2007 and now stands at 17.1 million square feet.

At the height of the last recession, between 2001 and 2004, sublease space never topped 14.4 million square feet.
Leasing activity in Manhattan has risen from its 20-year low of 3.2 million square feet in the first quarter, to 4.5 million square feet. Also, the addition of sublet supply has slowed in Manhattan. During the peak financial crisis, the report says that sublet space increased by an average of almost 900,000 square feet per month. That rate fell to 525,000 square feet in May and June; the figure has since hit a plateau. While there are numerous positive indicators in the market, it's too early to assume that this trend will continue.

The average asking rent for retail space has declined by more than 30 percent since the beginning of the year on Madison Avenue between 57th and 72nd streets. Madison Avenue is not the only shopping haven feeling he burn, fifth Avenue between 42nd and 49th streets saw its average rents drop by more than 20 percent in the last six months. Those drops, along with vacancies left by big name stores like Circuit City and Ann Taylor, reflect the overall malaise in the Manhattan commercial rental market.

Manhattan office vacancy rates rose and asking rents fell in July after a relatively stable June. The Class A vacancy rate in Manhattan rose to 12.1 percent, the highest rate since June 1997. The increase in the Class A vacancy rate was due to a rise in space available for direct lease, even as the amount of sublease space on the market actually fell. Class A asking rent dropped 2.1 percent to $64.22 per square foot from $65.77 per square foot in June. In Midtown, the vacancy rate rose to 13.7 percent, and was over 15 percent in the Plaza and Grand Central submarkets. The vacancy rate hit 13.9 percent in Midtown South and 8.4 percent downtown, all increases from June. While July saw several noteworthy leases and renewals, most were for the same amount of space or less than the tenant already held.