Manhattan office market showing signs of stability

NEW YORK: Manhattan office vacancy rate showed a decline of 11.1% at the end of December 2009, according to Cushman & Wakefield’s year-end data on the Manhattan commercial real estate market. This is the second consecutive monthly decline and an important sign of stability.

"The fourth quarter activity in the Manhattan office market clearly indicates an improving environment relative to the first half of 2009 and suggests the market has started to stabilise,” said Joseph R Harbert, Cushman & Wakefield’s chief operating officer for the New York Metro Region in a recent statement.

Stronger leasing activity was seen in 2H2009, helping to offset space added to the market and kept the vacancy rate unchanged from the end of 3Q. The total leasing activity for 2009 was 16.3 million sq ft, a decline of 15% from 2008 and the lowest annual total of the decade. Of the total, 2H accounted for 9.9 million sq ft, an increase of 56% from 1H.

Cushman & Wakefield reported that in 4Q, 10 leasing transactions were completed for space greater than 100,000 sq ft. Comparatively, the same period in 2008 saw only five transactions above that size.

Additionally, 2009 saw a surge of lease renewals, accounting for 28 of the 50 largest leases. The sublease vacancy rate, which peaked at 3% in July, declined to 2.7% from 2.8% in November. This marked the first quarterly dip in the sublease vacancy rate since reaching a six-year low of 0.9% in December 2007.

“Many of the largest firms in Manhattan have acted early to renew leases and take advantage of favourable rental rates, and that the activity would likely continue into the first half of 2010,” said Harbert.

Overall average asking rents in Manhattan fell to US$55.52 (RM186.65) at the end of 2009 from US$57.08 at the end of 3Q. This dip is the lowest since 1Q2007 when asking rents averaged US$53.43 per sq ft and are down 24% from their peak of US$72.97 in 3Q2008.

A majority of the new leasing activity occurred in Midtown Manhattan, which saw the office vacancy rate drop to 12% from 12.2% at the end of November. Improvement can also be seen in Downtown Manhattan where vacancy rate declined to 9.6% from 10.1% in November. The decline is largely driven by new leasing activity in December totalling more than 567,000 sq ft, accounting for 17% of the year’s activity Downtown.

However, Midtown South vacancy rate registered 10%, an increase from 9.9% at the end of November.

A differential rate of US$21.46 between the average asking rent in Midtown and Downtown was recorded at end-December.

Financial services firms were the most active industry in Manhattan in 2009, accounting for 25% of all leasing activity, followed by legal services with 11% and communications firms with approximately 6%. It is noted that of the 10 largest lease in 2009, five were completed by law firms.


The Manhattan property sales market finished the year with US$3.5 billion in transaction volume, a decline of 82% from US$19.6 billion in 2008 and 93% from US&47.7 billion in 2007.

Cushman & Wakefield noted that capital markets activity in 2009 was limited by three factors. Early in 2009, financing was extremely difficult to obtain and more investor were hesitant to invest, concerned that values would decline further. The prevailing obstacle, however, was the dearth of owners and lenders willing to recognise losses and sell assets.

But signs of improvement are beginning to show, according to Harbert. "There are signs of stabilisation in office market fundamentals, and the availability of financing is improving. We've seen an increase in activity, including foreclosures and workouts," he said.

More investors, domestically and globally came off the sidelines as 2009 progressed, with New York City being a top target market.

Overall, New York City property values declined 30% to 60%, depending on factors such as existing operating income, credit worthiness of the existing tenants and the rollover profile of the property.


Signs of stability began to show at the end of 2009 in Manhattan’s retail market. A decrease in availability were noted in two of the submarkets tracked by Cushman & Wakefield, while half of the submarkets tracked actually showed an increase in average asking rents fro ground floor space.

Increases in asking rents may indicate that better spaces are coming onto the market, and that owner confidence has increased, said Harbert.

"We believe the Manhattan retail market has bottomed. We expect that most of the submarkets will remain at the level they are now for the first few months of the year, and that absorption will return in the second quarter of 2010,” he said.

Average asking rents for ground floor space in Times Square were US$658 per sq ft at the end of 2009, an increase of US&71 per sq ft (12%) from the end of 3Q. It is noted that the increase occurred despite the increase in availability of 1.4% from 9.3% at the end 3Q, ending the year at 10.7%.

In Soho, asking rents increased to US$258 per sq ft, up 8% from end of 3Q as availability also saw an increase, to 12.6% from 10.8% at the end of 3Q.

Average asking rents for ground floor space on Manhattan’s Upper West Side ended the year at US$298 per sq ft, a 3% increase from previous quarter, while availability decreased from 11.1% at the end of 3Q to 9.2% at year’s end.

Availability on the stretch of Fifth Avenue from 42nd Street to 49th Street remained stable, ending the year at 13.9 %, a slight increase form 13.8 % at the end of the previous quarter. Average asking rents decreased US$11 per sq ft or 3.4 %, ending the year at $511 per sq ft.

Availability on the northern stretch of Fifth Avenue, spanning the north side of 49th Street to the south side of 60th Street remained stable at 3.3%. Average asking rents experienced a slight dip of US$250 per sq ft at the end of 3Q to end the year at US$2,000 per sq ft.

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