Manhattan Leasing Activity Remains Robust in Third Quarter

Technology Tenants Dominate Downtown Leasing Activity; Midtown South Registers Highest-Ever Leasing Total 

CBRE today released three Manhattan Office MarketViews for the third quarter of 2019. The reports show that leasing activity totaled 7.34 million sq. ft., 4% above the five-year quarterly average. In addition, Manhattan year-to-date leasing activity totaled 22.22 million sq. ft., 1% higher than the same period last year.

Manhattan’s average asking rent notched another record high, rising 2% quarter-over-quarter to $81.52 per sq. ft. 

Midtown South registered the market’s highest quarterly leasing activity total on record at 2.58 million sq. ft. and Downtown year-to-date leasing at its highest level in nearly 20 years. Midtown average asking rents rose to an all-time high of $89.45 per sq. ft. despite below average leasing activity and several large block space additions resulting in negative absorption of over 2 million sq. ft.

“The Downtown and Midtown South markets continue to surge as demand from tenants, especially in the tech sector, remains strong,” said Nicole LaRusso, Director of Research and Analysis for CBRE Tri-State. “Overall, we expect leasing to remain robust for the remainder of 2019, with several large leases expected to close in Midtown.”
 
The Midtown market finished Q3 2019 with 2.94 million sq. ft. of leasing activity, 32% behind its five-year quarterly average. Tenants in the financial services industry have accounted for 30% of year-to-date leasing activity, followed by coworking / shared space at 13%. Despite investor concerns surrounding WeWork, it accounts for just 1.5% of the occupied square footage in Midtown. An unprecedented 12 blocks of space greater than 100,000 sq. ft. were returned to the market, leading to negative net absorption of more than 2 million sq. ft. during the quarter and an availability rate rise to 11.5 %. However, with large leases totaling up to 3 million sq. ft. expected to close within the next 3 to 6 months, the outlook for the market continues to be positive.

According to CBRE’s MarketView, the average tenant improvement allowance (TI) for new leases of raw space completed year-to-date in 2019 reached $106 per sq. ft. with 14 months’ free rent.

In Midtown South, which saw the year’s largest lease to date with Google’s 1.3 million sq. ft. deal at 550 Washington Street, leasing activity totaled 2.58 million sq. ft. during Q3 2019, the highest quarterly total on record. As a result of the robust leasing, the availability rate decreased to 9% in Q3 2019, falling 100 basis points (bps) from the previous quarter and down 180 bps from one year ago. Quarterly net absorption registered a positive 767,000 sq. ft. in Q3 2019, pushing net absorption into positive territory for the year.

The average asking rent in Midtown South finished Q3 flat quarter-over-quarter at $83.56 per sq. ft. but is up 8% year-over-year.

In the Downtown market, Q3 leasing activity totaled 1.81 million sq. ft., 1% higher from the previous quarter and 38% above the five-year quarterly average. The 5.61 million sq. ft. leased YTD is the highest leasing total since 2000. Interestingly, tenants, primarily technology firms, migrating into the market accounted for a staggering 676,000 sq. ft. of leasing activity—37% of the market total. The availability rate sharply decreased 120 bps from Q2 2019, ending the quarter at 11.8%. The average asking rent, at $62.34 per sq. ft., remained stable from the prior quarter. 

The full Q3 2019 Manhattan Office MarketViews can be viewed here.