Manhattan’s office market weathered a sluggish start to close the year with the lowest vacancy rate in 18 months and the highest leasing rate Midtown has seen in two decades, according to analysis by Cushman & Wakefield.
In particular, tenants were drawn to large, new spaces Downtown and in Midtown West. In total, 39.5 million s/f of office space was leased or renewed last year, 4 million s/f more than 2016 and the second most in a single year in more than a decade behind only 2014, when 43 million s/f was snatched up.
“2017 was, indeed, the year of large leases,” Richard Persichetti, Cushman & Wakefield’s regional director of tristate and Northeast research, said during a conference call last week. “Fifty-six leases larger 100,000 s/f were signed, which was the highest number on record and better than the yearly average of 45.”
Of those 56 large leases, 10 were inked in for space south of Canal Street, 22 were for upwards of a quarter-million s/f and 38 were signed by companies looking to change locations compared to 18 that simply renewed. Last year also marked an uptick, Persichetti said, in tenants signing new leases several years in advance.
“Since 2016, 40 percent of the large tenants that have signed leases had three years remaining compared to less than one third from 2013 through 2015,” Persichetti said.
“This trend seems to be growing due to an increase in new development as large corporations sign forward commitments for future new office product.”
All told, the borough-wide vacancy rate fell to 8.9 percent, down 40 basis points from 2016. The Midtown and Downtown markets spurred this trend, falling by 20 and 150 basis points, respectively, while the vacancy rate in Midtown South crept up slightly thanks to occupancy slips in the Madison/Union Square and Chelsea submarkets as well as a jump in space available for sublease.
Still, despite the slight increase, Midtown South held the lowest vacancy rate of the three major markets at 6.9 percent compared to 9.5 percent in Midtown proper and 8.7 percent in Lower Manhattan.
Midtown South’s modest decline could be explained, in part, by a contraction in the technology, advertising, media and information, or TAMI, field. Although 2017’s employment data has not been finalized, initial analysis shows the TAMI sector, which has thrived in neighborhoods such as Chelsea, the Flatiron District, NoMad and Union Square, lost 9,200 jobs last year, capping a five-year run of diminished growth with the first decline since 2009.
Also, many TAMI firms also have taken space in Hudson Yards and FiDi.
Ken McCarthy, principal economist and head of applied research for Cushman & Wakefield in the Americas, said post-recession job growth has been on the decline since it peaked in 2014, but the TAMI industry had consistently been at the forefront of employment gains in the city.
Conversely, the financial services sector has been tepid and inconsistent, sometimes adding as many as 11,000 jobs in a given year, other times adding as few as 500, but in 2017 it led the pack with 12,700 new jobs. However, the specific jobs created and the locations where they’re being added paint a different picture, McCarthy said.
“If you look at where the jobs are being created and where financial service companies are leasing space, it looks to us like a lot of those jobs being created in financial services are actually TAMI jobs, they’re FinTech jobs,” McCarthy said.
“We know, for example, that J.P. Morgan leased space in at Manhattan West for their tech group, Master Card did exactly the same thing in Midtown South.”