Manhattan office space that was re-priced higher in the first quarter 2014 was significantly greater than the space re-priced lower. Downtown led the asking rents re-pricing with 1.5 million square feet re-priced in the quarter, nearly doubling Midtown space re-pricings, according to a report from CBRE.
“Clearly, Downtown is leading the upward re-pricing trend. Asking rents moved higher in 19 of 20 re-pricings in that market,” said Peter Turchin, executive vice president, CBRE. “Midtown South also saw 80% of its re-pricings move up, while Midtown was split 50-50. Overall, we are continuing to see a great deal of leasing activity in Manhattan, and there is usually a lag between increased activity and the re-pricing of rents. We are now in the re-pricing phase of the market.”
CBRE Research defines re-pricing as office space with a listed asking rent that changes in price. It does not count new space placed on the market with an asking rent or space on the market without an asking rent that is changed to space listed with a price.
In other office market news, CBRE reported that the booming tech sector continued its space growth in Midtown South, but that Downtown Manhattan and Brooklyn have become the latest beneficiaries of the expanding tech sector. While Brooklyn has been fueled primarily by existing firms experiencing organic growth, a number of tech companies have begun focusing on Downtown Manhattan as fertile ground for expansion.
“With Midtown South at an all-time pricing high and offering extremely limited availabilities, maturing tech companies are looking for new areas to grow their business,” said Sacha Zarba, executive vice president, CBRE. “Along with growing residential communities, both Downtown Manhattan and Brooklyn are opening up as true office market alternatives for tech tenants.
“In Brooklyn, conversions at the former Empire Stores coffee bean site and at the former Watchtower sites, among other sites in DUMBO, offer the kind of open and creative spaces tech companies want, along with convenient mass transit or even bike and walking commutes, as well as highly competitive pricing.”
Q1 2014 Manhattan Office Quarterly Snapshot Market Highlights:
MIDTOWN – Leasing activity totaled 3.94 million sq. ft. during Q1 2014, 38% higher than the 2.87 million sq. ft. of activity during Q1 2013 and 6% higher than the five-year quarterly average of 3.72 million sq. ft. During the first quarter, net absorption totaled negative 0.38 million sq. ft. in Midtown, compared to negative 1.00 million sq. ft. through the first three months of last year. The negative absorption during the quarter was largely driven by the addition to the market of 817,000 sq. ft. of Condé Nast space at 4 Times Square, in advance of its move to One World Trade Center. The availability rate finished at 11.9%, slightly higher than the 11.7% rate in the previous quarter, yet an improvement compared to the 12.4% rate reported one year ago. Driven by the addition of new availabilities at prices higher than the market’s average, the average asking rent in Midtown increased 2% during the quarter, finishing at $74.27 per sq. ft. compared to last quarter’s $72.85 per sq. ft. Year-over-year, the average asking rent in Midtown was up 7% compared to the $69.58 per sq. ft. average reported during Q1 2013.
MIDTOWN SOUTH – The market started 2014 at a near-historic leasing pace, totaling 1.66 million sq. ft. of activity through the first three months of the year, the highest quarterly leasing total for the market since reaching 1.76 million sq. ft. during Q4 2001. The quarter’s leasing activity was 50% higher than Midtown South’s five-year quarterly average of 1.11 million sq. ft. After posting negative 1.17 million sq. ft. of net absorption during all of 2013, absorption was positive during Q1 2014 at 0.50 million sq. ft. With strong leasing activity and few new large blocks of space added to the market, Midtown
South’s availability rate continued to tighten during the quarter, finishing at 9.4%, compared to 10.2% in the previous quarter and 10.7% one year ago. The average asking rent declined more than 2% during the quarter, to $63.05 per sq. ft., as the leasing of higher priced space drove the average downward. Despite the quarter’s decline in the overall average, asking rents in Midtown South remain near historical highs and increased 5% during the last 12 months.
DOWNTOWN – Leasing activity continued its strong pace during Q1 2014, with 1.62 million sq. ft. of activity reported. The quarter’s leasing total was 42% higher than the five-year quarterly average of 1.14 million sq. ft., marking the 12th consecutive quarter of leasing activity higher than the five-year average. Strong leasing was not enough to swing the net absorption total into positive territory, as negative 1.08 million sq. ft. of absorption was measured during the quarter. The quarter’s negative absorption was largely driven by the addition of One World Trade Center to the building inventory, which added 1.35 million sq. ft. of available space to the market. The availability rate Downtown reached 14.0% at the end of Q1 2014, higher than the Q4 2013 rate of 13.5% and the Q1 2013 rate of 13.9%. The average asking rent finished at $48.70 per sq. ft., 5% higher than the $46.47 per sq. ft. average in the previous quarter and 4% higher than the $46.87 per sq. ft. average one year ago. The asking rent increase during the quarter was largely driven by the upward re-pricing of available space and the addition of new building inventory priced at above-market rates.