A strong economy and low unemployment fueled Manhattan office leasing last year, which had its best year since 2014, as average asking rents hit their highest peak in a decade.
According to data from CBRE, in 2017, 28.4 million s/f of office space was leased in Manhattan, while average asking rent per square foot hit $79.91.
The Midtown area had an exceptionally good year, its best in more than a decade. CBRE executives attributed the robust year in office leasing to low unemployment numbers and a strong economic environment.
Notably, TAMI tenant leasing fell from 30 percent of all leases signed to 22 percent, while FIRE, buoyed by employment growth and major deals at new or renovated buildings like BlackRock’s lease at 50 Hudson Yards, Mastercard’s deal at 150
fifth Avenue, and JP Morgan Chase Digital’s expansion at 5 Manhattan West, was at the front of the pack, with 38 percent of all leasing.
Mega leases turned out to be the big story in 2017, with a staggering 88.3 percent increase in deals totaling 250,000 s/f or more.
“The U.S. economy is in a surprisingly good place for where we are in the cycle,” said Spencer Levy, head of research for the Americas at CBRE.
“We are late cycle and late cycle means we are getting closer to a slowdown, but because of the unusual fiscal stimulus we have by virtue of the tax plan, we believe that the cycle could last longer.”
Levy pointed to the “wild cards” that could lead to a possible slowdown: the labor force and interest rates. With a labor force so tight, it could grow faster than it companies can hire people, and if the Fed raises interest rates.
“No matter what happens, New York City is poised to do well in any slowdown scenario, because of these irreplaceable
factors of creating talent, attracting it and retaining it, and notwithstanding some of the gripes about subways, some of the best infrastructure in the world,” said Levy.
Paul Amrich, a vice chairman at CBRE, said more and more tenants are demanding new construction, leaving landlords of older buildings no choice but to update.
“Landlords are being intelligent about how to update older buildings, and are pressing the envelope to figure out how to take it to the next level,” said Amrich. “Tenants are trying to create a culture in their firm and they’re doing that by quality of space and what they can create in terms of an environment. A lot of that is driving that construction and I think that’s great for the city as a whole.”