New York Market Overview
- Total Manhattan Class A Office vacancies increased from 9.2 % vacant to 9.6 % vacant
- Total New York City Office vacancy increased from 8.1 % vacant to 8.4 % vacant
The office leasing market is strengthening and asking rents in Midtown Class A buildings rose for the first time in two and a half years during the second quarter, but overall asking rents for Manhattan office space continued to decline. Asking rents in Midtown Class A properties rose by 39 cents per square foot to $69.17 per foot, the first jump in 10 quarters. But as an indication that the broader market remained soft, asking rents for all Class A buildings fell by $1.04 per foot to $62.87 per square foot, dragged down by Downtown where asking rents fell by $2.06 per foot to $45.72 per foot.
Midtown Manhattan office vacancies declined to 11.5 percent during the second quarter, from
12.6 percent in the first quarter, making it one of the most-improved central business districts in the country. In the Midtown South and Downtown Manhattan business districts, meanwhile, office vacancies declined by just 0.6 percent and 0.01 percent, respectively, quarter-over-quarter. Rents fell quarter-over-quarter in all three Manhattan office markets: by $0.27 in Midtown to $61.66; by $2.61 in Midtown South to $43.71; and by $1.14 Downtown to $37.81. But overall, the U.S. office market is showing signs of improvement.
The New York City office vacancy rate declined 20 basis points to 11.5 percent during the second quarter but is expected to rise as companies continue to downsize. Despite continued job gains citywide, many businesses are still under-utilizing their office space and are likely to consolidate as their leases expire. Furthermore, 6.9 million square feet of new office space is currently under construction in the city, 70 percent of which is accounted for by the World Trade Center projects and 11 million square feet more is in the planning stages.
New construction starts for New York City office buildings declined significantly in the first four months of the year. The value of office building construction starts during the first four months of 2010 totaled $163 million, which puts it on track to reach $489 million by the end of the year - a figure that pales in comparison to 2009's $2.6 billion and 2008's $1.3 billion. Renovations and construction on existing office buildings comprised the majority of office building activity, with little ground-up construction momentum so far this year. Few projects have come down the pipeline.
Last month the most expensive deal of the year, with an effective rent of $120 per square foot at the Lever House at 390 Park Avenue, was signed, while another deal for an effective rent of $114 per square foot at the Seagram Building at 375 Park Avenue, also closed. But that activity does not signal an improvement of the overall office market, just that an appetite remains for trophy properties on Park Avenue.
Segments of the commercial leasing market improved sharply in Manhattan in the second quarter of 2010, led by large office deals such as 11 Times Square and New York City's largest retail lease ever at 666 Fifth Avenue. New office leasing volume in Manhattan topped 12.6 million square feet in the first half of the year compared to 6.4 million square feet leased by the same period last year.
The downturn has sharply reduced the premium rent asked by landlords of about two dozen of Midtown's modern Class A buildings. The asking rent premium for the top office buildings, representing about 40 million square feet in Midtown, has fallen by 74 percent. The top buildings now charge $11 per square foot more than the rest of the Midtown properties, a 17 percent premium, compared with a spread of $43 per foot, or 60 percent, near the peak of the market in 2008. That decrease in the spread, making the top buildings relatively more affordable, has driven down the availability rate in those buildings such as 11 Times Square, 320 Park Avenue and 1 Bryant Park.
The sales volume of U.S. commercial properties in the first two quarters totaled just over one quarter of the average of the six years prior. Through the end of June, $34.2 billion worth of deals had been completed, compared to the peak of $277.7 billion worth of commercial property sales during the same period in 2007. The dismal figures are a reflection of owners keeping their properties off the market until values recover.
Commercial property sales in Manhattan are firmly outpacing sales figures during 2009. Sales volume reached $2.95 billion in the second quarter, up from $930 million during the same quarter a year earlier. The volume of commercial property sales also increased quarter-over-quarter, climbing 16 percent from the first quarter's $2.5 billion worth of sales.