The Manhattan office market was on fire during the final quarter of 2018.
The FIRE sector — financial services, insurance and real estate — accounted for one third of the boroughʼs leasing business last quarter, according to a report from TransWestern.
Ten of the 4Q transactions exceeded 100,000 s/f, the largest coming from Millennium Management, a global investment firm which secured 300,000 s/f at 300 Park Avenue.
But with co-working considered the real estate part of FIRE, Transwestern research manager Danny Mangru credits the office sharing trend with pushing overall leasing to its highest in nearly two decades. “The FIRE sector has always had a good presence in the market, but I think what’s really driving it this year is co-working,” said Mangru. “We saw multiple leases coming out of WeWork, Knotel and Convene throughout the year.”
Co-working behemoth WeWork penned four deals above 100,000 s/f at 1440 Broadway, 609 Fifth Avenue, 149 Madison Avenue and 575 Lexington Avenue. Knotel also grew its New York City portfolio to over two million s/f last year.
And according to Colliers’ year-end report, deals by FIRE tenants made up 42 percent of the annual leasing activity, followed by TAMI tenants at 19 percent. Manhattan’s asking rent average also hit $75.90 psf, a new quarterly record, their report added.
“Demand was driven by many different industries, including co-working, financial services, pharmaceuticals, media, public sector and fashion,” said David Amsterdam, Colliers International’s president for investments, leasing and Eastern Region.
“Combined with record-level asking rents, tightening availability and positive absorption, 2018 ended with a remarkably strong market.”
Nicole LaRusso, CBRE Tri-State’s director of research and analysis, said there was no doubt that the co-working and flex space companies — accounting for 18 percent of 2018’s Manhattan leases — helped Manhattan reach record levels of leasing activity.
According to CBRE’s year-end report, Manhattan hit 32.4 million s/f in leasing activity, the highest annual total since 2000. Their report also noted that 2018 surpassed the last decade’s average of roughly 25.8 million s/f leased a year.
While she acknowledged there were questions in the industry of whether WeWork and Knotel’s leases count as “real absorption and real demand in the market,” LaRusso said she felt those companies offered real impact on leases.
“From where I stand, I look at co-working and flex space operators as taking space that might’ve been hard to lease otherwise,” LaRusso said. “There’s new space coming online and that makes it challenging for old space, so I think the co-working and flex space operators come in and take those blocks of old space off the market that might’ve been harder to lease.”
But co-working spaces only make up one sector of the healthy 2018 for Manhattan.
LaRusso said the financial services sector has fully recovered and experienced a resurgence, making up 28 percent of the borough’s leasing activity throughout the year.
She said that the financial services sectorʼs slow recovery began 10 years ago and, thanks to tech advances, has not just fully recovered, but expanded.
The tech sector itself also had a strong year, making up 10 percent of Manhattan leases in 2018, according to CBRE’s report.
Manhattan’s strong fourth quarter and overall year was attributable to a strong economy with companies expanding offices and employment and a steady pipeline of new office stock, according CBRE.
For specific markets, Mangru said that neighborhoods such as Midtown South are gaining on traditionally successful markets like Midtown.
According to the TransWestern report, Midtown South’s average asking rent increased to $79.99 psf, an all-time high and four percent greater than last year. Now, the neighborhood only trails Midtown by 18 cents psf.
Magru said they’ll likely be keeping their eyes on the growth of Midtown South and how the co-working sector will continue to impact the market.
LaRusso said CBRE is optimistic about a similarly strong 2019, but added that it would hinge on the city’s pipeline of office stock.
“I keep coming back to how important the supply side is to the functioning of the market,” LaRusso said. “There are a lot of people asking if we’re adding too much space, but it’s the fact that we have all this space for tenants to move into that keeps the market humming.”