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Manhattan office leasing shows its FAANGs

Facebook, Amazon, Apple, Netflix and Google — a group now officially dubbed FAANG — have helped drive Manhattan office leasing to the highest levels in nearly two decades.

The heavy-weight tech companies led the sector to complete 35 percent of 2019ʼs leasing activity, according to a new office market report from Savills.

During Q4, Facebook leased 1.6 million square feet across 50, 30, and 55 Hudson Yards, while Amazon also secured an additional 335,408 s/f at SL Green’s 410 Tenth Avenue in Hudson Yards.

50 Hudson Yards

According to Colliers International, the FIRE sector (finance, insurance, real estate) continued to dominate the market, accounting for 36 percent of the year’s leasing business.

In all, Colliers reported 42.97 million s/f of space was leased last year, a 2.9 percent year-over-year increase and the strongest year of leasing in Manhattan since 2001.

And while showpiece midtown towers including Hudson Yards and The Spiral and Manhattan West celebrated landmark deals, it was downtown that fared best.

FRANKLIN WALLACH

“Even though we saw the strongest leasing volume in almost two decades across Manhattan, 2019 was really the year for the Downtown office market,” said Franklin Wallach, Senior Managing Director, Colliers International New York Research.

“While most of the markets experienced some combination of higher leasing volume, tighter availability, positive absorption or an increase in the asking rent average, Lower Manhattan checked all these boxes.”

Boosted by 3.89 million square feet of leasing activity during the last three months of 2019, full-year Downtown leasing (10.70 million square feet) increased nearly 70 percent since 2018, making it the strongest year of leasing volume in Lower Manhattan so far this century, surpassing the previous record of 10.04 million square feet in 2000.

FIRE sector tenants accounted for 40 percent of all Lower Manhattan leasing in 2019. The public sector followed with a 21 percent industry share.
Downtown’s asking rent average increased every quarter in 2019 and ended the year at a new quarterly record of $64.64 psf.

Manhattan’s leasing volume has been on the rise since 2016 and last year’s activity was 15.2 percent ahead of its five-year historical average.

Colliers cited strong job growth and unemployment in the city holding steady at 3.7 percent for the increased demand for office space.

74 Trinity

According to Savills, 21 percent of all Manhattan leasing in 2019 was at new developments. Four new buildings were delivered during the quarter — 1 Manhattan West, 441 Ninth Avenue, 74 Trinity Place and 261-263 West 34th Street and 16 million feet remains under construction in Manhattan.

Availability went up, quarter over quarter to 12 percent, Newmark Knight Frank reported in its 4Q survey. This was due to ten blocks of at least 100,000 s/f coming onto the market, the largest of which was 652,010 s/f at 825 Eighth Avenue. This meant that despite the record leasing numbers, absorption was negative as inventory went up by 9.2 million s/f year-over-year to 460.2 million.

The Hudson Yards/ Manhattan West (4.5 percent) and World Trade Center (11.2 percent) submarkets ended 2019 with post-Great Recession low availability rates.

The only submarkets with Class A asking rent averages above $100 psf were in Midtown South and Downtown: Tribeca ($175), Greenwich Village ($149.19), Chelsea ($125.73), Hudson Yards/Manhattan West ($125.08) and SoHo ($101.30).

Colliers found that availability at the end of the year was at 10 percent, a rate that is considered a “market equilibrium point,” favoring neither landlord or tenant. During this time sublet availability also grew and now represents 22.5 percent of total available inventory in the borough.

The investment sales market remained slow in 2019, with 199 transactions valued at $23.2 billion, down from 2018’s 263 deals valued at $34.7 billion.

Savills’ predictions for 2020 are that there will be a dip in demand for flex space following the WeWork fallout, and with the struggling company no longer chasing large spaces, availability will rise.

Leasing for coworking/flex space has already cooled by 83.3 percent from the last quarter, Newmark Knight Frank reported.

However, Savills still expects competition for commercial space will remain high with TAMI tenants willing to pay more for premium new product.

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