The Manhattan Office Market: Absorbing It All
Although it’s still early in the year, net absorption for the Manhattan office market is looking healthy. Breaking the latest figures down by submarket and district level reveals a few cracks, but nothing terribly alarming and, most importantly, nothing unexpected.
Through February, net absorption for all classes of Manhattan office product totaled positive 2.45 million square feet, quite a turnaround from the negative 58,000 square feet at the same time last year. That said, Manhattan ended 2013 well within positive territory, at 5.6 million square feet. The first two months of 2014 have returned to levels not seen since 2005-2007 (i.e. prior to the Great Recession).
Of the three major submarkets, Midtown South has remained the healthiest with net absorption of positive 1.5 million square feet. The Class B/Class C segment accounted for 83% of that, due to the relatively small Class A segment in that submarket.
In addition, Downtown Manhattan continued to impress with net absorption at positive 1.3 million square feet, with 76% of that coming from the Class A segment. (Class B/Class C was also positive, but with so much inventory converted to residential, it has become a relatively small subset.)
Then there was Midtown; the submarket had a sluggish kickoff to 2014, with net absorption at negative 425,000 square feet. Although Class B/Class C was actually positive, the Class A segment pushed the total into the red. In fact, much of Midtown was stable-to-healthy. The Westside/Times Square district was largely responsible for the negativity, as 4 Times Square added 817,000 square feet of direct space to the market (thanks to a relocating Conde Nast).
Looking ahead, particularly to the near term, we can predict many of the blocks that might hit the market, whether from the opening of new buildings or from shrinking or relocating tenants. Newmark Grubb Knight Frank knows for certain one new property, 1 World Trade Center, will add up to 1.3 million square feet of vacancy by mid-2014 with further, smaller additions from tenants relocating. On the flip side, expect TAMI (tech/advertising/media/information) to continue its expansion, with some additional residential conversions taking place across Manhattan as well.