Despite Big Drop in Vacancy, Asking Rents Down

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The first quarter of 2018 came to a close for the Manhattan office leasing market, and it was still more of the same. Despite a 10-basis-point drop in the overall vacancy rate to 8.8 percent in the first quarter, overall asking rents dipped $0.12 per square foot to $72.13 and new leasing activity totaled slightly less than 7.1 million square feet—a 7 percent year-over-year decline. Although overall average asking rents dropped minimally, the bigger trend was that they declined in 14 of the 20 submarkets during the first quarter.

SEE ALSO: Midtown’s Biggest Office Leases of 2018 (So Far)

Overall average asking rents in Midtown actually increased $0.12 per square foot to $77.06 in the first quarter, despite six of the nine submarkets posting quarterly declines. There were three submarkets that contributed to the slight overall increase: Murray Hill posted a 6.4 percent jump to $62.36 per square foot, Penn Station recorded a 3 percent increase to $61.85, and the East Side/U.N. inched up 0.1 percent to $73.43 per square foot. The remaining six submarkets had asking rent declines in the first quarter, with Sixth Avenue/Rock Center posting the largest drop—down 1.7 percent to $83.90 per square foot.  Park Avenue asking rents dropped 1.2 percent to $89.42 per square foot, while the remaining four submarkets each had less than 1 percent declines.

In Midtown South, asking rents increased $0.26 per square foot to $69.13, despite asking rent declines in three of the five submarkets. Hudson Square/West Village recorded the largest drop in Manhattan, down 4.1 percent to $77.18 per square foot, followed closely by Greenwich/Noho’s 2.8 percent drop to $75.25 per square foot and Soho’s 1.4 percent decline to $72.57 per square foot. These decreases were not attributed to weakening market conditions, but were due to higher-priced space leased in the first quarter. Both Chelsea and Madison/Union Square recorded asking rental increases, 2.3 percent and 1.9 percent respectively.

Downtown was the only major market to post a drop in the overall asking rent during the first quarter, down $0.56 per square foot to $59.67. Only one submarket, World Trade, posted a rental increase of 0.9 percent to $65.03 per square foot. The remaining five submarkets recorded asking rental declines ranging from high of -3.8 percent in City Hall to a low of -1.2 percent in Financial East. Downtown was the only market that did not record an increase in new leasing year-over-year, and with activity down 59.9 percent compared with 2017, asking rents could further decline if demand remains in the red.