The U.S. economy slowed sharply in the first quarter of 2014 with real gross domestic product (GDP) currently estimated to have increased at an annual rate of approximately 1.5%, down from 2.6% in the final quarter of 2013. Most of the slowdown was caused by the severe winter of 2013-14 which caused drops in consumer spending, hours worked and manufacturing output. But the national economic slowdown had no discernable effect on the Manhattan office market. In many ways the market’s performance during the first quarter was one of the best of the 21st century.
- Leasing volume was strong. Cushman & Wakefield estimates that 9.4 million square feet (msf) of new leases were signed in the quarter. Only one quarter in the past decade recorded higher leasing volume (the second quarter of 2011).
- Absorption surged. In the first quarter 3.6 msf of space was absorbed off the market indicating that the amount of space occupied by tenants is rising. That’s the second best quarter for absorption in the past decade.
- The result of the strong absorption was a steep decline in the vacancy rate, the largest decline in vacancy in almost 5 years.
The big story in the first quarter was, not surprisingly, the Midtown South market. Nearly 2.5 msf of new leasing was recorded in Midtown South, the most in a decade as tenants like IBM Watson, Twitter and Sony leasing large blocks of space in the market. As a result, Midtown South retained its position as the tightest market in the nation as the vacancy rate dropped from 8.6% to 7.9%.
The remarkable performance of the Manhattan office market is a direct reflection on the continuing strength of the New York City economy. Although some key office-using industries like financial services have lagged, overall office using employment (the sum of financial services, professional & business services and information) is approaching a record high. Employment in these industries peaked in early 2001 at the end of the last technology boom and it is highly likely that the current surge will surpass the 2001 peak in the very near future.
So the weather may have slowed the national economy, but it did not slow New York City and it certainly did nothing to slow the Manhattan office market.