The high end of the market is thriving, as demand for pricey space accelerated through the third quarter. The number of triple-digit leases signed so far this year is nearly 40 percent above the total from all of last year, and, of the 48 such leases recorded so far this year, a whopping 20 were signed in the third quarter alone, according to data from Cushman & Wakefield (CWK).
Midtown demand remained steady in the quarter, with 393,426 square feet of positive absorption bringing the 2013 absorption totals to just under 1.5 million square feet, the Cassidy Turley data shows.
Midtown South continued its streak as the city’s darling, with inventory availability remaining below 9 percent, despite the addition of the new 400,000-square-foot building at 51 Astor Place, which gave Class A asking rents a healthy $7.65-per-square-foot boost to $75.02.
But even without 51 Astor Place in the mix, the Class A average was $68.78, and Class B rents increased $1.22 per square foot to $60.02—the highest ever for Midtown South. But that’s also where Downtown is making much of its gains, as tenants are priced out of its exceedingly pricey northern neighbor.
The overall Manhattan availability rate dropped in the quarter to 11.5 percent, down from 12.1 percent in the second quarter and its lowest level since late 2011, according to the report from Collier’s, whose executives took to a more moderate tone than others.
“You had a blistering second quarter, and now we’re kind of back to that normal range,” said Joe Harbert of Collier’s International.
Manhattan’s vacancy rate declined, falling to 6.2 percent, down from 6.4 percent in the second quarter but still modestly above the average of 6 percent recorded in 2012 and the first quarter of 2013, the Cassidy Turley’s data shows.
“In short, the overall Manhattan occupancy level for office space has increased during the last two quarters and appears to be escaping from the doldrums recorded in the latter half of 2012 and the first quarter of 2013,” according to that report.
While there weren’t many surprises Uptown, Downtown continues to open eyes, as the older building stock is more than ever sought as a value alternative to Midtown South. But new Class A product now rivals that seen uptown. Nearly 1 million square feet of positive absorption recorded in the quarter occurred downtown, where a rebirth plays out with the completion of 1 World Trade Center, the repositioned Brookfield Place, the imminent arrival of 4 World Trace Center, and repositioned space along Water Street.
In previous cycles, Midtown was the market driver, but, as Midtown South slowly came under the spotlight, coupled with ever-rising rents, tenants are looking south, which is more than ever a destination spot for young professionals who live in surrounding enclaves.
Average Class A rents downtown, at $52.56 in the third quarter, were more than $22 cheaper than their Midtown South counterparts. As a result, 94 tenants have moved south of Canal Street since January 2012, according to Cassidy Turley.
“Downtown didn’t skip a beat after Sandy,” said Cushman & Wakefield Chief Economist Ken McCarthy. “There’s a value play there, because Downtown has good, high-quality office buildings that are for the first time significantly less expensive than Midtown South.”
The retail market’s strength can also be seen in owners’ confidence to raise rents. Average retail rents experienced significant increases in nine of the 10 corridors tracked by Cushman & Wakefield.
Again, Downtown shined. Average ground-floor retail asking rents in Lower Manhattan (Broadway, Wall Street and Fulton Street) are up 29.4 percent year over year to $277 per square foot, behind only the Flatiron District, the Meatpacking District and Soho, the latter of which recorded a staggering 59.5 percent increase.
Brookfield Place showed that high-end retail has a place downtown, cutting deals with names like Burberry, Hermès, Ferragamo and Michael Kors, which now mix in with kids clothing and home furnishing stores that were absent a decade ago and old favorites like Century 21 and J&R Music and Computer World.
Notable deals of the quarter downtown include Urban Outfitters, which took 20,900 square feet at 180 Broadway, City Sports’s 10,000 square feet at 50 Broadway and TD Ameritrade taking nearly 10,000 square feet at 100 Broadway. Meanwhile, retail at and surrounding 1 World Trade Center World Trade Center is rumored to be 70 percent committed, according to Cushman & Wakefield.
“If you go downtown, through Soho, you can’t even walk on the sidewalks,” said Alan Schmerzler, an executive director with Cushman & Wakefield, at the firm’s third-quarter conference last week.
Despite optimism prevalent throughout the market, the city’s traditional drivers of growth are still lagging. Health care, technology, professional and business services continue to drive demand for office space, as their employment levels grow.
However, the financial sector suffered a decline in employment through the first eight months of the year when compared to the same period in 2012, and financial sector employment is still 6.2 percent below the prerecession peak, the Collier’s report showed.
“On the one hand, total jobs are up, but, on the other hand, financial is soft—and finance is very important in New York,” Mr. McCarthy, of C&W, noted. “Throughout the rest of the country, financial is growing, but the weakness is in the media and information sectors … and in New York it’s the reverse.”
Yet the long-term outlook for the city among the industry’s experts remains high. Slight upticks in interest rates have “really had very little impact on New York,” said Steve Kohn, C&W’s president of equity, debt and structured finance.
In turn, investors continue to look to the city, and real estate assets in general, as a safe investment, and there’s plenty of talk among the industry’s players of more big deals looming.
“We’ve got a pretty good pipeline in the works, so we’re looking at the fourth quarter probably being a little stronger,” Mr. McCarthy said. “There’s a lot of chatter about big deals … but that stuff sometimes doesn’t happen.”
