Midtown South overall average asking rents surpassed Midtown for first time on record
New York, NY, October 10, 2018 – Manhattan third quarter new leasing activity soared to the highest level in 18 quarters with 9.6 million square feet (msf) transacted, on track to reach the second-highest new leasing year on record, according to Cushman & Wakefield’s Q3 2018 Manhattan Office Market Report.
“The robust activity in Q3 marked the second consecutive quarter that leasing surpassed 9.0 msf, and the strongest two-quarter period on record,” said Louis D’Avanzo, Vice Chairman, Managing Principal, Midtown Manhattan. “Meanwhile, Midtown South overall asking rents surpassed Midtown for the first time in history, as new construction hit the market with triple-digit asking rents.”
Year-to-date Manhattan office leasing reached an historic high of 25.7 msf, triggered by 33 new and expansion leases greater than 100,000 square feet (sf), noted Richard Persichetti, Vice President, Tri-State Region Research Lead, who pointed to Pfizer’s 1.2-msf sale-leaseback at 219 and 235 East 42nd street as the largest deal signed during the quarter.
“If the pace of average quarterly lease activity continues through end of year, Manhattan will finish 2018 with one of the market’s highest annual totals and the single highest year-end total since the peak of 2014,” Persichetti said. Despite the strong leasing pace, he noted that vacancy inched up 30 basis points (bps) in the third quarter as total vacant space increased to its highest quarterly level in four years, mainly due to space returns in Lower Manhattan.
Sublease space climbed 20.1% in the third quarter to 6.8 msf, while direct available space remained steady at 31.2 msf. Overall asking rents in Manhattan remained stable at $72.65 per square foot (psf), but reached all-time highs in Midtown South and Downtown.
The Midtown overall vacancy rate remained unchanged during the quarter at 9.2%, though it declined 40 bps from one year ago. Class A vacancy dipped 30 bps to a 10-year quarterly low of 8.9%, driven by four new leases greater than 100,000 sf. Despite an 18.1% increase in sublease space, direct available space fell to the lowest quarterly level since 2015. Quarterly new leasing activity reached a record 7.1 msf, fueled by five leases each greater than 100,000 sf, while year-to-date activity outpaced this time last year by 15.9% with 17.2 msf transacted. As leasing activity outpaced space returned to the market, year-to-date overall absorption registered positive 4.5 msf.
Lower-priced sublease space that entered the market pushed Midtown asking rents down by $1.32 psf to $76.12, as six of the nine submarkets recorded declines. Madison/Fifth Avenue asking rents fell by $6.78 psf to $91.90 due to 264,091 sf of lower-priced sublease space entering the market.
Despite strong third quarter leasing, the completion of 512 West 22nd Street brought 145,600 sf of available space to the market, which drove Midtown South vacancy up by 70 bps to 7.4%. The Chelsea vacancy rate jumped by 100 bps to 7.5%, but remained 100 bps lower than the 8.5% it registered one year ago. Midtown South Class B vacancy dipped 70 bps to 7.5%, mainly due to Spaces’ 100,613-sf lease at 287 Park Avenue South.
Third quarter new leasing activity in Midtown South totaled 1.8 msf, marking a 44.1% increase compared to the prior three-year quarterly average of 1.3 msf. Year-to-date new leasing registered 5.1 msf, already surpassing the 2017 total by 0.8%. Persichetti noted that the Madison/Union Square submarket was the major driver of Midtown South leasing, accounting for 53.8% of its total year-to-date activity. As leasing activity outpaced new space additions, overall absorption remained positive for the third consecutive quarter, bringing year-to-date absorption to nearly 1.3 msf.
Downtown overall vacancy increased 70 bps in the third quarter to 12.0%, its highest level since the beginning of 2014 due in part to the addition of 333,474 sf at 28 Liberty Street and 95,921 sf at 32 Old Slip. Third quarter new leasing reached 672,053 sf, marking the lowest quarterly level of activity since 2016. A lack of large third quarter leases contributed to the decline in activity, with the largest lease totaling 76,278 sf.
Year-to-date leasing dropped 28.6% from this time last year with 3.4 msf transacted. While the slower pace of leasing and an increase in available space brought third quarter absorption into negative territory, year-to-date absorption remained positive at 255,532 sf. Downtown asking rents increased to a record $63.72 psf, partially due to higher-priced space that entered the market at 28 Liberty Street and 32 Old Slip.
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