Manhattan Office Market Activity Cools

Manhattan’s office market experienced some cooling in early 2018 after several consecutive quarters of positive absorption in 2017, reported Transwestern, Houston.

Manhattan saw 1.7 million square feet of negative absorption during the first quarter, Transwestern said. But the market had 7 million square feet in leasing activity despite the slowdown.

The quarter’s absorption figure mirrored first-quarter 2017, which also had 1.7 million square feet of negative absorption, the report noted.

“While the market didn’t maintain the high level of activity of the previous two quarters, there were several large leases, both new and renewals, which indicates steady demand from the large, 100,000-square-foot users,” said Transwestern Research Manager Danny Mangru. “Perhaps unsurprisingly, the FIRE [finance, insurance, real estate] sector remained among the market’s most active during the quarter.”

Finance, insurance and real estate users accounted for five of the eight leases that exceeded 100,000 square feet during the quarter, Mangru said.

Manhattan’s availability rate rose to 11.4 percent in the first quarter from 11.1 percent last quarter as 14 blocks of space exceeding 100,000 square feet were added to the market. “Much of the availability is the result of space returning to the market after tenants had moved to newer or higher-quality space during recent quarters,” the report said.

Asking average rents closed the quarter at $74.04 per square foot, virtually unchanged from year-end 2017 and up 3 percent year over year, the report said. Both Midtown and Downtown Manhattan saw minimal rent movement. Midtown South ended the quarter at $76.36 per square foot, up 6 percent from last quarter, driven by new additions in the SoHo and Chelsea/Flatiron submarkets. Gramercy Park witnessed a 6 percent increase quarter-over-quarter because 880 Broadway’s 103,000 square feet delivered during the quarter, all of it priced between $118 and $130 per square foot. The submarket ended the quarter at $72.63 per square foot.

Transwestern reported 17.2 million square feet under construction, much of it on the West Side in areas such as Hudson Yards and Manhattan West. Most of these properties have seen tremendous pre-leasing activity and are all close to being fully occupied.

“The outlook for the remainder of 2018 remains healthy at the moment, but over the next six to 18 months there are a number of large blocks over 100,000 square feet that will officially hit the market, as tenants start to move into new construction and new product comes online,” the report said. “Demand will need to pick up for the remainder of the year to absorb the excess supply coming available.”