New York Market Overview
- Total Manhattan Class A Office vacancies increased from 5.8 % vacant to 6.0 % vacant
- Total New York City Office vacancy increased from 5.8 % vacant to 5.9 % vacant
The office leasing market has slowed down, but some big commercial deals are in the works.
While some retailers, like Steve & Barry's and Comp USA, are going bankrupt, many of the retail sectors in New York City are staying strong. The Meatpacking District, Broadway in Soho and Fifth Avenue is seeing rent increases and new retailers. The growth is largely due to international tourists, re-zoning and landlords becoming more flexible about rent to keep their from becoming vacant.
The dollar is rising in value, and this may hurt foreign tourism and real estate sales in New York City. Europeans make up about one-third of all new condominium purchasers, and 20 percent of the city's tourists. In the past month, the dollar has risen 8 percent against the Euro, and increased 21 percent compared to gold.
The turmoil on Wall Street has claimed its share of commercial real estate victims, but one bright spot may be the office leasing market. The sales side of the business has seen a tremendous drop-off, downsizing and penny pinching on the part of New York City tenants. A game of musical office spaces has spurred some activity for leasing brokers.
Midtown South's office vacancy rate ranked as the nation's lowest, despite a year-over-year increase from 3.5 percent to 5.9 percent in the second quarter. New York City, which had the most commercial leasing activity nationwide, saw average asking rents increase by $14.88 from last year's second quarter. Midtown Manhattan's average asking rent reached $83.96, tops in the nation, followed by Midtown South at $53.22 and Downtown at $50.74.
Brokers expect more big firms to sublease by the end of the year, due to the layoffs in the financial sector. Only about 1.4 million square feet of office has been subleased, less than half of the that should be shed. Financial firms do not want to dump their only to lease it back at a higher rate when the economy rebounds, or that an increase in subleases is still to come.
Due to foreign tourism, Fifth Avenue is operating like there is no recession in sight. The upscale shopping district on the avenue between 49th and 60th streets has seen four new leases already this year, including Diesel and Tommy Hilfiger, while only one new retailer leased last year, and two new retailers leased in 2006. Asking rents have risen to $2,500 per square foot, up from $1,500 per square foot from last year.
After two consecutive quarters of vacancy increases, Manhattan's office market showed a slight tightening in July from the previous month. The market's overall vacancy rate decreased to 8.6 percent, down 10 basis points from 8.7 percent in June. Manhattan's 8.6 percent vacancy rate represents a 170 basis point increase from 6.9 percent in July 2007. Class A vacancy showed an even more significant recovery, falling to 6.7 percent in July, from 7.0 percent the month before.
As of June, there were 54 blocks of large available with 100,000 square feet or larger. This inventory is up 35 percent from the same time last year. Only 15 to 20 tenants are looking for big block spaces and that the imbalances between supply and demand will likely push rents down. When incentives like free rent and generous construction allowances are factored in, some rents are already down 15 to 20 percent from last year.
Disney will not renew its lease for the World of Disney store at 711 Fifth Avenue due to rent increases