By Holly Dutton
With a series of jumbo leases on the horizon and a solid third quarter performance, the city’s real estate firms have produced upbeat third quarter market reports.
At the release of the Cushman & Wakefield report last Thursday, the take-away was Midtown continues to rule the office leasing market.
And at Colliers, Joseph Harbert, president of the Eastern Region, was giving brokers a pat on the back for a job well done.
“After the second quarter’s blow-out performance with 9.6 million square feet of completed transactions, it was widely expected that the pace of leasing would slow in the third quarter, which it did,” said Harbert.
“However, at 6.3 million square feet, the level of leasing activity was well within the normal range. Moreover, there are indications that other large leases are very close to signing.”
Overall leasing and rents are up while vacancy is down in the third quarter of 2013, according to the third quarter commercial market reports.
Office leasing rose 9.78 percent year over year, reaching 18.4 million s/f, according to Cushman and Wakefield.
The vacancy rate through the first three quarters of 2013 totaled 10.6 percent overall, a slight uptick from 10.4 percent last quarter.
In the 2Q, the Midtown South Class-A average asking rent exceeded Midtown Class-A average asking rent for the first time, and since Cushman and Wakefield started tracking the market.
“The Midtown South Class-A asking rents have soared to a record high,” said David Rosenbloom, executive director at Cushman and Wakefield, in a press release.
Average asking rent for Midtown South is $74.55, soaring over the overall average asking rent in Manhattan of $62.51 p/s/f, a 6.3 percent year-over-year increase.
The report notes that the higher number reflects new construction entering the market, which is effectively driving rents up. However, the Midtown South Class-A market is considerably smaller than the Midtown Class-A market.
Notable neighborhoods with new leasing activity include the Sixth Avenue corridor around Rockefeller Center, which had 1.8 million s/f of new activity, just shy of the overall total for 2012, which had 1.9 million s/f of new leasing activity.
“Sixth Avenue is back,” said Rosenbloom, who previously represented NBC Universal in leasing 182,000 s/f at 75 Rockefeller Plaza.
The Grand Central neighborhood took a close lead, with a total of 1.9 million s/f of new leasing activity this year.
The report noted that a large contributor to the strength of new leasing activity in 2013 can be attributed to the technology sector, which continues to be expand in the city.
On the other side of the coin, the financial services sector has remained flat, with employment in the sector down 7,300 jobs since August 2011.
“Lagging financial services employment is having a negative impact on the office market,” said Ken McCarthy, chief economist at Cushman and Wakefield.
In Lower Manhattan, steady leasing activity has fueled the first decrease in vacancy rates for all office property classes for the first time since the third quarter of 2011, according to a market report from Jones Lang LaSalle.
Downtown’s overall vacancy rate dropped to 13.7 percent in the third quarter, a decrease of 5.5 percent from 14.5 percent last quarter. Year-over-year, the overall vacancy rate climbed 35.6 percent from 10.1 percent in the third quarter of 2012.
Creative industries, most notably advertising and tech firms, accounted for 28.4 percent of all downtown leasing in the third quarter, while traditional downtown office tenants like legal and financial services, were responsible for 17.9 percent of total leasing volume.
Lower Manhattan’s Class A rents increased to $54.63 p/s/f, a slight increase of less than 1 percent from $54.51 p/s/f last quarter. Year-over-year, Class A rents rose 15.4 percent from $47.35 p/s/f in the third quarter of 2012, a result of a slew of space opening up at the World Trade Center, 180 Maiden Lane and Brookfield Place.
In the third quarter last year, vacancy at Trophy properties accounted for 29.6 percent of Downtown’s available space, while at the end of September this year, it was 54.3 percent.
Overall, the market seems to be normalizing after a booming second quarter, according to a report from Collier’s International.
While leasing and investment sales dropped off from the second quarter boom, the healthcare, tech, professional and business services industries remained the key drivers of activity.