market research

March 2016

March 2016 New York Commercial Real Estate Market Report

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The Stock market's steep losses last month made companies leary of making major decisions.
This caution affected both the office and retail rental markets as leasing volumes were quiet.

This month, the US stock market regained most of the losses from the previous month, and we expect normal leasing volumes in both office and retail to occur.

New York Market Overview

  • Total Manhattan Class A Office vacancies increased from 8.8 % vacant to 8.9 % vacant
  • Total New York City Office vacancy increased from 7.8 % vacant to 7.9 % vacant
Manhattan office and retail leasing has been slow and the stock market is making companies nervous. Both office and retail leasing volume were down last month compared to the month-over-month and year-over- year figures. Office leasing activity was down about 1 million square feet from both December and January 2015.

The retail market this year will be slow with some predicting a drop in tourism and others noticing that tenants are jittery over high rents. Manhattan retail leasing ended 2015 on a high note, even as availability rates crept up. But January's preliminary figures show a reversal of that leasing rush.

January's top ten office leases spanned 919,480 square feet of space. The top transactions were nearly split between Midtown and Downtown, but Midtown saw the most activity with six of the top ten. The month's largest lease deal was Downtown, however, with media investment firm Group M taking 173,536 square feet at 3 World Trade Center.

The average asking rent for office space in Manhattan rose 29 cents to $72.15 per square foot. Total leasing activity during the month, totaled 1.31 million square feet in January, marking a 41% drop from the five-year average of 2.2 million square feet for the month.

Midtown leasing activity of 700,000 square feet was 46% below the five-year average for January, while 230,000 square feet of leases signed in the Midtown South office market represented a 47% drop below that average.

The Downtown market saw 376,000 square feet of leases signed, 18% were below the five-year average.

Soho's Broadway corridor, demand is weak as demand has shifted to the neighborhood's less expensive side streets. Asking retail rents dropped 5.4% in the fourth quarter, to $796 per square foot from $840 per square foot. The drop in tourist spending is due to the strong dollar and has meant retailers' sales volumes have fallen behind landlords' high-rent expectations.
Across Manhattan at large, average asking rents hit all-time highs last year, surpassing even their pre-recession peak in 2007. The Meatpacking District saw rent growth ranging from 11% to nearly 13%, as well as Fifth Avenue between 49th and 59th streets.

Asking rents within that Upper Fifth Avenue corridor jumped 5.6% from the third quarter, to $3,826 per square foot from $3,623 per square foot. Increased confidence among landlords were driven in part by Bulgari's new lease at the Crown Building at 730 Fifth Avenue which broke the city record with rents in excess of $5,000 per square foot.

There is 2.4 million square feet of retail construction in the pipeline for Manhattan, largely due to mixed-use developments like Hudson Yards and Essex Crossing.

The Downtown Broadway corridor saw asking rents jump to $449 per square foot from $290 per SF in the previous quarter. The emergence of TAMI-sector Tenants downtown has helped drive demand for increased retail options, as a rising number of retailers seek a presence in the area. The priciest availabilities there are asking up to $600 per square foot.
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