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Office Market

Another solid year of office leasing for in demand New York

The new baby may be getting all of the attention, but the old standard Midtown is still strong, according to multiple year-end reports.

“Midtown finished the year very strong,” Frank Wallach, senior director in the research group of Colliers told Real Estate Weekly while discussing how the neighborhood had the strongest leasing activity in the last 12 years.

Midtown had 16.7 msf of leasing activity. The FIRE sector had a near 50 percent share of Midtown leasing in 2015, while TAMI companies lagged at 20 percent.

Availability dropped 70 basis points (bps) year-over-year, to 10 percent, while yearly net absorption was positive 1.95 msf, 62.8 percent stronger than 2014.

Meanwhile, Midtown’s average asking rent increased 7.8 percent year-over-year to $80.61/sf, its most significant annual increase since 2011 and the first time Midtown’s average asking rent crossed the $80/sf threshold since 2008.

Leasing activity in Midtown South, at 10.5 msf, fell off 19.2 percent year-over-year. But leasing activity was 31.2 percent above the historical ten-year average of 8.0 msf and ranked as the second best year of Midtown South activity since 2006. TAMI tenants made up almost one-third of all 2015 Midtown South leasing activity.

At 7.0 percent Midtown South availability was 90 bps less than a year ago, resulting in the tightest market since the fourth quarter of 2007.

And year-over-year the average Midtown South asking rent was up 7.4 percent, to $66.07/sf, a new all-time high. Increases occurred across all building classes, including Class B and C asking rents, which ended 2015 at record levels.

Wallach said that though Midtown South has been continuing to thrive as the new epicenter of office leasing in the borough, landlords in the traditional Manhattan corridor have begun updating buildings to remain competitive.

The name recognition and plentiful subway lines are also providing a boost. Wallach pointed to Morgan Stanley and MetLife’s decision to recommit to the area as an indication of Midtown’s still intact draw.

”In summarizing last year’s Manhattan office market, we can say that 2015 was really a continuation of 2014 — which was an excellent year for office leasing,” Howard Fiddle, vice chairman and co-head of CBRE’s Agency group said.

“Indications are that 2016 will likely see a number of large deals completed within traditional Midtown,” he continued.

But not all are sold on the strength of the sector.

Keith DeCoster, director of U.S. real estate analytics for Savills Studley, was less bullish.

he said, “There’s a lot more available space coming up in Midtown. Ideally, Midtown would hope to attract a lot of interest, but there are so many different buildings and sections of midtown that all have big blocks available that we see vacancy increasing.”

DeCoster said that, even if leasing should increase from last year, Midtown is not yet back to its former glory and he does not expect a “big bust” of activity to be on the horizon.

As for Midtown South, both DeCoster and Wallach expect 2016 to continue the neighborhood’s rise.

“What’s happening in Midtown South is there’s very few big blocks of space and a lot of the activity occurred from early 2011 through 2014. There’s still a lot of activity in the 15,000-30,000 s/f range,” DeCoster said.

“What’s pretty amazing about Midtown South is that even though it’s really the tightest market in New York City, leasing has kept a very steady pace each quarter. Historically the average is about one million s/f.”

“Tenants are still attracted to Midtown South,” added Wallach, noting a modest number of recent renewals.  “They’re there and they’re going to stay there.”

Highlights from Colliers International’s 2015 fourth quarter Manhattan analysis:

Manhattan ended 2015 with average Class A asking rents of $75.49/sf, up 7.1 percent from $70.48/sf a year ago.

At $115.79/sf, Chelsea recorded the highest Class A asking rents among Manhattan’s 17 submarkets

The average 2015 Manhattan office property sale price/sf was up 39 percent year-over year ($996/sf vs $715/sf), and up 96 percent from the 2012 post-recession low ($509/sf).

“The Manhattan office market posted another solid year in 2015 as New York is still the most in-demand city in the world among employees seeking a 24/7 live/work/play environment and international investors looking for safe, value-driven opportunities compared to other global markets,” said Joseph Harbert, Eastern Region President for Colliers International.

“Leasing was down over the prior year, although average asking rents once again hit record highs and investment sales closed in on peak levels.

“There was also a Midtown resurgence at a time when Downtown cooled off. We anticipate another healthy year in 2016.”

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