Best of 4Q 2013 Manhattan Office Leasing Statistics

As we enter the holiday season and a traditional slowdown in the velocity of business and real estate transactions, we would like to provide a mid-4Q Market Report on commercial office leasing in NYC.  Unfortunately, most of the typical reporting on office leasing tends towards dry and easily manipulated statistics.  

We’d like to provide instead a brief summary of the most interesting and compelling headlines of the last half-quarter and our analysis of these trends:

  • * A research report has found that office buildings located adjacent to subway stations have asking rents almost 20% higher;

This one’s kind of obvious...and office buildings located directly atop transportation hubs (200 Park Avenue, 1 Penn Plaza) tend to do well also!

  • * The average age of a Midtown office building is 63 years old;
  • * The average age of Midtown East buildings is 73 years;
  • * Only one building on Third Avenue is fully leased and there is 500K+ sf available between 40th-44th Streets alone;
  • * Midtown financial tenants have listed blocks of space of more than 250,000 sf for sublease in the past two years causing Midtown absorption to remain flat since mid-2010;
  • * Manhattan added over 5.0 MM sf of brand new office space this year, the largest amount since 1989;
  • * Midtown office properties sold for highest dollar in 2013 with a $723 per square foot average;

In Midtown, newer properties perform (and sell) better!  Also, Midtown East needs Bloomberg’s rezoning plan, otherwise, Third Avenue becomes the “end of the earth”.

  • * The entire world is aging, exerting downward pressure on global growth and eliminating demand for U.S. goods and services;
  • * Today, 13% of the U.S. population is over 65 years of age. By 2023, this percentage will rise to 20%;

It’s not just the buildings that are getting older… it’s us too, but here’s the good news:

  • * Information Technology jobs in NYC have increased by 29% in the last five years, to a total of over 52K;
  • * Leasing activity by information technology tenants has dropped Midtown South vacancies to below 6%, with annual rent growth averaging 7.7% for three years;
  • * Technology firms prefer older, affordable office buildings to modern, glass towers with prestigious addresses;
  • * Only 12 transactions of over $100/sf occurred in 3Q 2013;
  • * Over 100+ tenants relocated to Lower Manhattan over the last two years;
  • * NYC will need 50+ MM sf of new office space by 2040;
  • * Midtown South office buildings sold for a $457 per square foot average;

Information technology remains the driver for job creation and thus, leasing activity.  Tech firms primarily seek affordability (i.e. way below $100/sf) in office properties, although municipal incentives have also helped bring tenants (and investors) south of Midtown.  Maybe Third Avenue needs to be designated an enterprise zone!

  • * 180 Maiden Lane takes the prize as MVP (“Most Vacant Property”) with 800,000+ sf ready for occupancy by mid-2014;
  • * MVP Part II - Less than 15% of 3 WTC has been leased (over 2.4 MM sf remains);
  • * MVP Part III - Less than 60% of 1 WTC has been leased (over 1.3 MM sf remains);
  • * Office demolitions and conversions are decreasing competition for tenants, as empty space is removed from the market and vacancies decline;
  • * In 2014, 20% of the top 50 U.S. metro areas will have a net reduction in office inventory;
  • * Downtown office properties have traded at an average of $423 per square foot;

Downtown still needs help!  Maybe 180 Maiden and/or 1 & 3 WTC should be demolished or converted to residential use?

In short, our population is aging, but so is our building population.  Fortunately, the growing technology sector prefers affordable, older properties predominantly in Midtown South and Downtown (municipal incentives don’t hurt either!). This is good news for Downtown, which currently has three of Manhattan’s most vacant properties.  Still, Manhattan needs to continually upgrade its building population with new properties to remain globally competitive while finding ways to incentivize tenants to occupy buildings.