Midtown business growth leads office market recovery

Midtown business growth leads office market recovery

Cushman & Wakefield released midyear statistics for the New York City commercial real estate market that indicate businesses are expanding in Midtown Manhattan.

For the six month period ending June 30, 2004, new leasing activity measured 14.3 million square feet, compared to 11.4 million square feet through the first six months of 2003. The strong leasing activity resulted in a decline in the overall office vacancy rate in Manhattan and positive overall absorption.

The overall office vacancy rate fell sharply to 11.8 percent at the end of the second quarter from 12.5 percent at year-end 2003. Overall absorption, which measures the change in space occupied over a given period of time–including sublease space–was positive for the first time since early 2001, measuring 1.9 million square feet in Midtown and 1.7 million square feet in Manhattan overall.

Ken Krasnow, executive managing director and head of Cushman & Wakefield’s New York offices, attributed the news in part to the amount of large leases in the market and a “voracious appetite for sublease space.”

In the first half of 2004, Mr. Krasnow said, 18 office leases were completed in excess of 100,000 square feet, six more than were completed in the first half of 2003 and triple the amount completed in the first half of 2002.

“Last year we were talking about a perceived bottom in the market and a more stable environment for commercial real estate in New York,” Mr. Krasnow said. “Now we’re seeing and feeling growth, and that’s evident in the fact that more businesses are growing and office space is being leased at a faster pace than space being added to the market.”

He added that sublease transactions remained attractive to the largest tenants. Three of the top five deals in the market through midyear were sublease deals, totaling about 1.5 million square feet. The sublease vacancy rate declined to 2.8 percent from 3.3 percent at yearend, and is down from a high of 4.3 percent in the second quarter of 2002.

For the six month period ending June 30, 2004, Mr. Krasnow said, all three Manhattan markets experienced significant vacancy rate declines. Midtown South’s vacancy decline was most significant, falling to 11.9 percent from 13.3 percent at year end. Midtown declined 0.6 percent to 11.3 percent, and Downtown dropped to 13.0 percent from 13.5 percent.

The average asking rental rate increased incrementally in Manhattan overall, to $40.56 at midyear from $40.53 at yearend. Downtown’s rental rate continued to fall, to $32.25 from $36.92 at yearend, while Midtown and Midtown South each saw rental rate increases to $47.16 from $45.37 for Midtown, and $30.56 from $30.37 for Midtown South.

The most active industry in the leasing market continued to be law firms, which year-to-date have leased more than 1.6 million square feet of office space in Manhattan, representing close to 20 percent of the market. Law firms have been particularly active Downtown, leading all industries in leasing with about 670,000 square feet of transactions. Financial services firms have been the second most active industry in Manhattan, leasing more than 1.2 million square feet and leading all industries in leasing in Midtown.


MANHATTAN 2Q ’04 1Q ’04 4Q ’03 2Q ’03 2Q ’02

Total Vacancy 11.8% 12.2% 12.5% 12.5% 11.3%

Sublease Vacancy 2.8% 3.1% 3.3% 3.9% 4.3%

Overall Rent $40.56 $40.06 $40.53 $41.12 $44.46

DOWNTOWN 2Q ’04 1Q ’04 4Q ’03 2Q ’03 2Q ’02

Total Vacancy 13.0% 12.9% 13.5% 12.6% 13.4%

Sublease Vacancy 2.6% 2.5% 2.8% 3.1% 5.9%

Overall Rent $32.25 $33.68 $36.92 $36.36 $40.15

MT SOUTH 2Q ’04 1Q ’04 4Q ’03 2Q ’03 2Q ’02

Total Vacancy 11.9% 13.0% 13.3% 14.5% 13.3%

Sublease Vacancy 2.1% 2.4% 3.2% 4.5% 4.5%

Overall Rent $30.56 $31.04 $30.37 $31.09 $35.72

MIDTOWN 2Q ’04 1Q ’04 4Q ’03 2Q ’03 2Q ’02

Total Vacancy 11.3% 11.8% 11.9% 12.0% 9.9%

Sublease Vacancy 3.1% 3.6% 3.6% 4.0% 3.6%

Overall Rent $47.16 $45.61 $45.37 $46.56 $50.15

COPYRIGHT 2004 Hagedorn Publication

COPYRIGHT 2004 Gale Group