To renew, or not to renew, that is the question. And if Hamlet were alive today, and leasing space in Manhattan, he would join the list of tenants who face a decision: Should we stay in place and keep our old, tired looking office, or move to new digs? In 2014, more tenants chose to relocate compared with previous years, as the percentage of lease renewals was down. Only 28.8 percent of the square footage leased throughout Manhattan was renewals, down from the 38.1 percent average from 2013.
Downtown benefited the most from this trend, as only 14.2 percent of its square footage leased was renewals. The increase in new leasing activity has a direct correlation with more and more tenants migrating Downtown from Midtown and Midtown South. Also, with an overall average asking rent of $55.38 per square foot, Downtown still remains a value-option compared with the other two markets where asking rents average 20 to 40 percent higher. Midtown had the most square footage renewed in 2014, with 33.4 percent of the leasing activity remaining in place; and Midtown South was not far behind with a 31.1 percent renewal rate.
The big three industries (professional services, financial services and information services) continued to dominate the Manhattan leasing activity, accounting for 70.4 percent of the square footage leased in 2014. Leading the way was the professional services sector with 27 percent of the activity, which edged out financial services by only 0.6 percent. Information services rounded out the top three industries with 17 percent of the leasing activity. Not only was the professional services industry the king of leasing activity, but it also renewed the lowest percentage of space, 26.5 percent, out of the big three industries. Financial services firms had the highest renewal rate out of the big three at 35.2 percent throughout Manhattan. But despite the high renewal rate throughout the market, the number of new leases signed in Midtown within the financial services sector increased over the past two years, which bodes well for the market.
Richard Persichetti is vice president of research, marketing and consulting at DTZ.