Nothing gets my research blood pumping more than a good absorption statistic, or even better, a trend.
Yeah, I admit it—that’s about the nerdiest thing I think I have ever said (and I’ve said a lot of nerdy things in my time). In any case, this one statistic can single-handedly reveal a great deal about what’s happening in a real estate market, no matter the property type.
The short version of the absorption definition is “net change in occupied space,” but a lot is contained in those few words. Obviously, if office space is being absorbed, the market is improving in terms of job growth (or expected job growth). The idea is to base the figure on truly vacant space, though many other factors come into play when deriving that number. This includes but is not limited to preleasing in new construction, the inclusion of both direct and sublease space, and the timing of a tenant move-in and move-out during a relocation.
There is another big issue affecting net absorption these days. Due to reasons such as cost constraints, new build-out techniques, underutilization of current space, desk sharing or tenants working offsite altogether, companies are generally taking less square footage per employee. Thus, even with the strong office job growth NYC has seen, absorption doesn’t reflect that growth like it once did.
So now that we have that all out of the way, we can look as some of those fabulous figures for Manhattan.
For the month of May, absorption reached into positive territory with a figure of 647,534 square feet. This follows three straight months of negative absorption. In addition, it is the best number since August of last year, which came in at 720,718 square feet. Year to date, Manhattan is still in the red, at negative 1,028,648 square feet. That said, Manhattan has improved upon the numbers recorded in late 2008/early 2009, toward the end of the Great Recession. During that period, the figure was in the red by well over one million square feet during nine out of 11 months, bottoming out at negative 3,717,618 square feet in January 2009.
Generally in a recovery, one might expect net absorption to pick up the pace faster in the Class A segment (with pricing at a low point for what is considered the best space available). However, this hasn’t been the case recently, with the Class B segment outperforming Class A somewhat, thanks to the actions of TMT (technology, media, telecom) tenants, not only in Midtown South but also in Midtown and Downtown. And speaking of Downtown, it has actually held its own relatively well, absorption-wise, though that may change when both 1 and 4 World Trade Center are delivered within the next few quarters.
So when you’re reading our market report and only have time to focus on one statistic (of course I’m sure you’ll want to read the entire report eventually), zero in on net absorption, my favorite market statistic.