Yesterday morning, a panel of Cushman & Wakefield experts presented on the state of the New York City real estate market. At the event, fourth quarter statistics were released for the Manhattan commercial real estate market that show year-end new leasing activity totaled 28.2 million square feet (msf), representing the third highest total in the past decade.
The strong leasing volume lowered the overall Manhattan vacancy rate to 8.5 percent, the lowest it has been since year-end 2008, when the vacancy rate was 8.1 percent.
“2015 was a very strong year, and we are optimistic that the combination of a healthy TAMI sector coupled with stronger growth in financial services will continue to drive the market forward in 2016,” said Ron Lo Russo, President, New York Tri-State Region.
“New York City has experienced extraordinary job growth over the past five years. We expect that the City will continue to act as a magnet to the young professional millennial worker that companies are seeking to hire,” said Ken McCarthy, Principal Economist, Applied Research Lead.
Manhattan’s three major markets closed the year with vacancy rates in the single digits. Midtown South, with a 6.2 percent vacancy rate, was surpassed as the tightest Central Business District in the nation by San Francisco, which had a vacancy rate of 5.9 percent. The Midtown market closed the year with a vacancy rate of 8.8 percent, a decrease of 1.0 percent year-over-year and the Downtown market closed at 9.4 percent, a decrease of 0.3 percent year-over-year.
At year-end, the overall average asking rent in Manhattan increased 5.7 percent year-over-year to $71.58 per square foot (psf), from $67.70 psf and the Manhattan class-A average asking rent increased 4.2 percent to $76.76 psf.
Overall absorption for the year was positive in all three major markets, totaling nearly 4.5 msf. The Midtown market represented 75.0 percent of Manhattan’s positive absorption, with 3.3 msf.
“Fundamentals and activity at the outset of 2016 are strong,” said Gus Field, Vice Chairman. “Due to pending variables, we see either moderate growth or a moderate slowdown this year.”
Mr. Field, who presented the Manhattan office market at the firm’s year-end press conference, pointed to changing interest rates and the upcoming election as some of the variables that will affect the growth of the market this year.
The TAMI (Technology, Advertising, Media & Information) sector has been the main reason for the growth in office leasing following the recession, but financial services has become an important factor in the continued growth in the market. From 2011 to 2014, the TAMI sector accounted for 28 percent of the market share of Manhattan new office leasing, with financial services accounting for 25 percent. This year there has been a shift. For year-end 2015, the financial services sector accounted for 29 percent of the market share and the TAMI sector accounted for 27 percent.
For the retail market, the evolution of technology is playing a larger role in retailers’ real estate decisions.
“Retailers who embrace the omni-channel experience – the integration of e-commerce, bricks-and-mortar, technology, and mobile and social apps – are likely to do so in urban flagship locations,” said Joanne Podell, Vice Chairman. “This seamless integration of cutting-edge technology makes them well-suited to promote in-store product, create memorable experiences, and pull big data to better understand their customer.”
Manhattan average retail ground floor asking rents increased in five of the 11 retail corridors, with Flatiron seeing an increase of 6.9 percent, Meatpacking an increase of 5.2 percent, SoHo an increase of 4.6 percent and Lower Manhattan an increase of 4.2 percent. The availability rate increased in eight of the corridors, with Herald Square/West 34th Street closing the year up 8.3 percent and Fifth Avenue (42nd to 49th Streets) up 6.2 percent.
In the equity and debt market, Steve Kohn, President, Equity, Debt & Structured Finance, noted that despite global economic noise creating volatility in fixed income markets, CMBS persevered in 2015.
Mr. Kohn stated that there has been significant volatility in the world affecting spreads in debt. Looking forward, he questioned if this is a period of “short term volatility or a longer term upward trend in capital costs?”
Robert Knakal, Chairman, New York Investment Sales, stated at the mid-year point that the sales market was surging toward an all-time dollar volume record. That, in fact, was the case. By year-end there was a total of $74.5 billion of completed transactions.
The total number of properties sold decreased year-over-year, with 5,089 properties sold in 2015 compared with 5,532 properties sold in 2014.