By Sarah Trefethen
Manhattan’s office market recovery looks to be on summer vacation, and experts are unsure when it’s expected back.
Fresh reports from all of the major brokerages point to a second quarter that was far from remarkable, with the overall Manhattan vacancy rate hovering at nine percent and leasing nudging south.
“Businesses are clearly using space more efficiently,” said Cushman & Wakefield economist Ken McCarthy at the firm’s mid-year press conference on Tuesday.
Historically, the city’s current office work force of around 1.24 million should have the vacancy rate closer to six percent, McCarthy said. But he was optimistic that the workforce could continue to grow to fill the available space.
“If we could add 40,000 office worker jobs we’d get to 6 percent,” he said.
Overall leasing activity was 5.4 million s/f, down from 5.8 million s/f in the first quarter, according to Cushman’s data. These two quarters mark the first time since the first quarter of 2010 that total leasing activity has dropped below the 10-year average of six million square feet.
Asking rents for office space in midtown were stable at $66.44 per foot, and downtown held fast at $40.06.
Midtown south was the only major submarket that saw an increase in asking rents, from $48.45 at the end of March to $49.93 last quarter.
The tech hotspot continues to be “the healthiest market in New York City, in America, and it kind of feels like it might be the healthiest market in the universe,” said Andrew Peretz, a Cushman and Wakefield executive vice president.
Culture and image, rather than economics, are what draw tenants to the area recently colonized by Google and other creative high-tech firms, he said. “It’s got a critical mass of young, good-looking people.”
Midtown South is down to just seven available blocks of space greater than 100,000 s/f, from 16 such blocks in June of 2009. Asking rent in Chelsea has spiked 28.3 percent from last year, and tenants looking to place their employees in this hip area no longer have the luxury of being too choosy when it comes to Union Square versus SoHo, according to Peretz.
“You have to look at the market in its entirety, because there’s just not that much space,” he said.
The midtown south vacancy rate is 6.1 percent.
Downtown, the 8.9 percent vacancy rate is much lower than the best-case projection of 12 percent that Cushman analysis calculated in 2009, Frank Cento, an executive director, pointed out.
Tenants are drawn to the area by rents that are still $20 per foot less than midtown as well as landlords will to make concessions not to be found in the north, he said, predicting that this up-and-coming neighborhood would continue to thrive.
“You walk by Stone Street today and there’s 1,000 people out there eating lunch,” he said. Don’t expect the market to stay quiet. Bill Hartman, another Cushman executive vice president who presented the midtown data for the quarter, pointed to a graph that showed the almost straight line of the neighborhood’s vacancy rate — which has hovered around 9.8 percent for a year — and reassured his audience that things can’t stay this way forever.
“Something’s got to happen next,” he said. “The only thing we don’t know is what.”