The decline of Midtown Manhattan has been completely overblown. That statement sounds rather dramatic, right? But there have been rumblings that due to the ongoing turmoil in financial services (primary cause of the recession, sharp job losses within the industry, variety of regulations still to be put in place), this most premier of real estate markets in the United States is in danger of losing that title.
No doubt financial services drive Midtown Manhattan, with just over 25 percent of the occupied Class A space filled with these specific tenants, not to mention the various industries closely associated with them. That said, the area is coming back from the brink with the long-term outlook trending in a more positive direction.
At the height of the recent downturn, the vacancy rate climbed to 13.9 percent on a sharp rise in sublet availability (which hit nine million square feet in May 2009 and its highest level since at least 1990). But sublease space today is down to 5.4 million square feet, with, granted, a few scattered additions recently. The Class A vacancy rate has fallen to 10.5 percent, only a bit above the 20-year quarterly average of 10 percent. Certainly financial service institutions have continued to lease space but it has also been a variety of other industries including tech (not just for Midtown South anymore) as well as media and other professional services firms helping to perk up the neighborhood.
Meanwhile, Midtown continues to be the most expensive market in the country, though not nearly reaching the point prior to the recession, when the average rent almost topped $100 per square foot. The current average asking rent for Class A space closed the first quarter at $72.50 per square foot, up an impressive 9.4 percent year-over-year and 28 percent above the 20-year quarterly average of $56.63 per square foot. A combination of easing sublet availability (generally at a significantly discounted price) as well as stronger activity at the trophy-end of the market has helped push that figure to its highest point in almost three years ($73.39 per square foot in April 2009).
On the supply side, there is little new product coming online in the next three years in Midtown—just 44 West 47th Street (425,000 square feet for office tenants), 250 West 55th Street (one million square feet) and 1045 Avenue of the Americas (400,000 square feet)—all of a 1 percent increase of the current Class A Midtown inventory. Because of the locations involved and the dates potentially available, there’s no point to even begin to talk of Hudson Yards and Manhattan West.
Robert Sammons, Cassidy Turley