Hello Recovery—This Is Manhattan Calling. Do I Have Availability for You!
I’ve been thinking a lot lately about the availability figure for Manhattan—as opposed to the vacancy figure, that is. It’s what we researchers do: dive deep into the statistical pool to see what lies beneath.
Now, availability and vacancy are words in market reports that are often used interchangeably, but, in reality, they can be very different numbers. In fact, currently the Manhattan overall vacancy rate is just 60 percent of the overall availability rate. And this gap between the two numbers really has a lot to do with just 17 or so mega-blocks delivering within the next 24 months in both Midtown and Downtown.
This leads to caveat No. 1: some of this upcoming space may be leased before it is vacated by the current tenant. And we might as well get caveat No. 2 out of the way as well: space in office buildings under construction is not included in either figure used in this little discussion.
If so, that would add another 3.1 million square feet (msf) of potentially vacant/available space by year-end 2013. Oh yes, and the focus of this intriguing data dive will be only on direct availability (though sublet availability will pop up for comparison’s sake, too). Okay, now time for lots more statistics (it’s best to do this as bullets so we don’t get lost among them all)!
- Direct availability for all classes in Manhattan now stands at 45.9 msf (or 81 percent of all space on the market). It has been above 40 msf for almost four years and is 69 percent higher than just before the start of the recession.
- Sublet availability has actually been on the wane, falling 38 percent to its current 10.8 msf from its recession-closing high of 17.4 msf.
- Except for the third and fourth quarters of 2011 (which were just nominally higher), this is the steepest that overall direct availability has been in Manhattan since the third quarter of 1996.
- The Class A segment is responsible for a whopping 70.5 percent of the direct availability in Manhattan (32.4 msf).
- The Class B/C segment of direct availability has been steadily falling since early 2010, and now stands at just 13.5 msf—thank you, Midtown South and TMT (tech/media/telecom).
- Finally, there is no doubt that Midtown is a big piece of the availability pie, making up 61 percent of the Class A space on the market in Manhattan (though Downtown has its fair share as well).
So let’s cut to the chase—something you’ll appreciate if you’ve made it this far! What all those statistics really mean is that we are well above normal direct availability (the quarterly average since 1996 for Class A being 22.9 msf versus the 32.4 msf today).
Certainly the lack of a complete economic recovery is partially responsible for the elevated figure. That said, (office) employment growth has generally been robust in NYC (the exception being financial services), but tenants are taking far less space per employee than in the past.
There will always be a need for office space, of course. Not everyone can or wants to work “offsite” or “deskshare.” However, the majority of the tenants in the market are most definitely flocking to value and/or efficiencies. And that is not likely to change for a long time, if ever again.