The third quarter of 2013 is in the books, and it looks by most measures to have been a pretty average quarter. Leasing volumes were average, asking rents were, for the most part, flat, and vacancy rates drifted higher.
The biggest surprise in the statistics was in the Downtown market. While vacancy rose from second quarter to third in Midtown (0.6 percent) and Midtown South (0.4 percent) it fell in Downtown (-0.7 percent). Leasing volumes downtown continue to exceed long-term averages. In the third quarter, total leasing, including new leases and renewals, reached 1.6 million square feet. That’s the seventh time in the last two years that leasing topped 1.5 million square feet.
People talk about the Downtown market as being Manhattan’s value market, and there is certainly some truth to that. Average asking rents downtown at $46.00 per square foot in the third quarter were well below those of Midtown ($68.41 per square foot) and Midtown South ($60.34 per square foot, yes, for the first time in history, Midtown South rents exceeded $60 per square foot). But there is more going on here than just tenants seeking lower rents. The Downtown story is as much about the transformation of a market and the transformation of the city. Downtown today is a destination and a home not just a place to work. Downtown is at the nexus of the thriving and rapidly growing residential neighborhoods of Williamsburg in Brooklyn, Hoboken in New Jersey and Tribeca in Manhattan. As these areas have grown, the desirability of Downtown as a business location has increased, particularly for creative companies in the media and advertising and technology businesses. The work force that these companies want to tap into lives closer to Downtown than it does to Midtown.
In addition to this demographic shift, there are the dramatic changes taking place in and around the World Trade Center. The two towers nearing completion are not just among the most technologically advanced buildings in the city, and, indeed, the world, they are also already more than half-leased, which means over the next two years Downtown will have thousands more workers than it did this year. And finally, there will be the dramatic increase in tourism as the World Trade Center Memorial and Museum are opened.
Tenants seeking space in Downtown today are doing so for many reasons, not just the price. It is becoming more than just a place to locate an office; it is becoming a vibrant, growing community.