Latest Manhattan Availability Numbers Stuck in Neutral
Robert Sammons Nov. 13, 2013, 6 a.m.
The Newmark Grubb Knight Frank October Manhattan office market statistics are out.
Landlords might be more excited than tenants, but the numbers weren’t all that compelling in either direction. I will briefly review total availability, so grab a cocktail and let the fun begin.
Total availability for Manhattan (all classes) closed October at 55.6 million square feet. That figure is down from 56.2 million square feet in September though still elevated from the 54.7 million square feet in August. The jump in September was due to three buildings added to inventory (51 Astor Place, 55 West 46th Street and 250 West 55th Street), which alone bumped up availability by nearly 1.1 million square feet. On a percentage basis, the availability rate wrapped up the latest month at 12.5 percent, down 20 basis points from September. (For the sake of brevity, I won’t delve into Class A except to say the story is essentially the same.)
So far so meh, right? Well, let me pull back over the longer term to give a bit more perspective. Total availability has remained above 50 million square feet in Manhattan for 58 straight months (that would be starting in January 2009), smack dab in the middle of the recession. Early on in this period, it was sublet availability that was giving landlords fits, though the current figure of 10.4 million square feet has actually fallen below the 10-year average of 11.2 million square feet, so all is more or less under control here for the time being.
Now, before I move on to direct availability, which has truly become the concern for the Manhattan market, I should step back and remind you that what’s good for the landlord is not always good for the tenant and vice versa. That said, if viewed from an economics standpoint, as availability falls, it generally means that tenants are adding employees and the economy is strengthening. Of course, on the flip side, a tight market can mean much higher pricing, which could push a tenant out of Manhattan. A balance is always best but not always easy to achieve.
The quick and dirty about direct availability is that it’s stuck in neutral. Since April 2009, the figure has remained north of 40 million square feet. There has been some ebb and flow since then, though the current 45.2 million square feet is very near the top going back those four-and-a-half years (the summit being 46.7 million square feet in November 2011). Direct availability is also well above the 10-year average of 38.3 million square feet.
The problem is relatively simple and something I have brought up across several columns: We are just not creating enough office jobs. Yes, there is solid leasing activity, though it has primarily been of the renewal or relocation (for same or less space) variety. Sure, some firms are growing; however, we need more of them to sustain true positive absorption. And this important tidbit: We are likely to have another 2.3 million square feet added to availability when 4 and 1 World Trade Center open in the fourth quarter of 2013 and the first quarter of 2014, respectively.
Look, it’s not the end of the world here. There are an increasing number of nontraditional tenants taking office space (health, biotech, education, etc.). Financial services is even likely to grow again in some way, shape or form. And despite space compression and fewer office jobs at the moment, Manhattan remains the premier U.S. gateway market and one of the top international cities—and it will remain so.
Keep calm and carry on!