Leasing activity in Midtown and Midtown South is slowing down as office tenants continue to cross the East River to Brooklyn.
According to CBRE’s second quarter 2016 Office MarketView report, leasing activity in two of Manhattan’s largest office markets declined drastically compared to the same period last year.
During the quarter, leasing activity in Midtown dropped by 32 percent year-on-year to 3.73 million s/f. Meanwhile, Midtown South posted a 37 percent decline as leasing activity shrank to 1.03 million s/f.
This was countered by strong numbers in Brooklyn. Leasing activity in the borough rose 15 percent year-on-year during the period.
“Manhattan tenants are continuing to relocate to Brooklyn. However, both inbound and organic demand across the borough needs to catch up with supply,” said Travis Yuengst, the sales director for CBRE’s Midtown Office Brokerage Management Team.
Brooklyn also registered growth in other categories. The average asking rent in the borough rose to $37.58 per s/f. This represents a 15 percent increase from the same period last year. The growth was mainly due to the performance of the South Brooklyn and Williamsburg/Greenpoint submarkets, which both rose by seven percent.
However, Manhattan is not entirely on the decline. Asking rents in Downtown rose to an all-time quarterly high of $57.47. The area also posted 1.1 million s/f of leasing activity during the period. This represents a 24 percent increase compared to the same period last year. Downtown was the only area in Manhattan to post positive year-to-date net absorption at 574,000 s/f.
According to Ken Meyerson, the vice chairman of CBRE Consulting, New York City’s office market remains strong in spite of uncertainty in the economic climate.
“Leasing velocity is strong — and there is very little sublease space on the market,” he said. “New York City employment is still growing and most of our clients are expanding. Even flat rents at these levels still indicate strong fundamentals in the city’s overall real estate market.”
“New York City’s continuing strong employment growth, healthy economic outlook and positive business environment make it one of the most highly sought-after markets for global investment,” added William Shanahan, the vice chairman of CBRE Investment Properties.
The report’s optimism is based on factors such as the Brooklyn Navy Yard. The complex, which is undergoing its largest expansion since the 1940s, generated $700 million in investments. It also focused on other Brooklyn projects such as Thor Equitiesʼ planned Red Hook Point, a 623,000 s/f office and retail development designed by Foster + Partners on the Red Hook waterfront.