By Al Barbarino
Digital companies are picking up the slack in the financial sector, boosting the health of the city’s commercial real estate market in unison with a strong rebound in the labor force, the latest reports from Cushman & Wakefield show.
At the firm’s Commercial Real Estate Outlook: First Quarter 2012 breakfast yesterday (Tuesday), company executives highlighted Manhattan rent increases and tight vacancy rates fueled by information/media companies.
The sector leased more space than financial services for the first time ever during the first quarter of 2012.
While financial services companies still occupy the most space citywide (with 32.8 percent of the market share), information and media companies leased 27.8 percent of space during the first quarter, overtaking financial services’ 26.3 percent.
“That’s the first time we’ve seen that,” said CEO Joseph R. Harbert. “This is a positive sign that market (information/media) has been very active during the first quarter. It’s a very vibrant part of the market and we’re very encouraged by that.”
The shift continued to drive vacancies down, both in Midtown South — where tech and media companies have traditionally congregated into “Silicon Alley” over the past several years — and Downtown, Harbert said. Rates in Midtown South dropped by 0.5 percent to 5.9 percent and by 0.3 percent to 9.2 percent Downtown, while the total Manhattan vacancy rate stuck at 9.1 percent — the same as last quarter.
Rents were up across the board from last quarter: from $65.42 to $66.70 in Midtown; $45.90 to $48.45 in Midtown South; and from $39.88 to $40.37 Downtown. Smaller space accounts for a much greater share of the total space being leased than it once did — another result of the industry shift, and a break from the traditional behavior of financial firms that often occupy larger spaces.
Roughly 80 percent of the Manhattan office space leased in the first quarter of 2012 was made up of blocks under 25,000 s/f. That’s up from roughly 65 percent in 2011 (entire year).
Meanwhile, leasing for spaces over 50,000 s/f dipped from 35.4 percent in 2011 to 19.8 percent during the first quarter of this year.
Harbert called the shift to small and mid-size deals an “encouraging sign for the marketplace.”
But he also down-played any doom and gloom outlook for the financial markets, suggesting that the sector will continue to have a firm grip on the city’s economy.
“When people say that the financial sector isn’t doing anything, it’s just not true,” Harbert said. “They’re still leasing about a quarter of the space in Manhattan.”
He pointed out that there were 13 deals over 100,000 s/f so far this year, putting the city on par to break last year’s total of 51 deals. He added, however, that 2012 would likely fall short of the 2011 number and end up somewhere in the 40’s, acknowledging the “blockbuster” year that was 2011; there was 7.6 million s/f of new leasing activity during the first quarter of 2011, compared with 5.8 million s/f in the first quarter of this year.
Nonetheless, the local city economy will continue to provide a healthy backdrop for the commercial real estate market, as city employment levels continue to crush prior expectations. The city added 71,900 jobs in 2011, compared with an expected gain of 37,400.
“Things have picked up a little more quickly than we thought as far as labor markets go,” said Ken McCarthy, the firm’s managing director of research for the New York metro region, adding that the employment levels in the city are at an all-time high.
Total city employment levels, at 3,838,000 in February, surpassed the previous record of 3,830,000. That record was set in June of 1969.
“New York City has far outperformed the rest of the nation.”