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«Cushman & Wakefield today released its first quarter report for the
Manhattan commercial real estate market showing continued increases in
asking rents for office space throughout the city, despite a slowdown in
leasing activity and an increase in vacancy rates.
Overall asking rents for Manhattan reached $67.13 per square foot at the end
of the first quarter, up more than 25 percent from $53.43 at this time last
year. Class-A asking rents soared more than 23 percent year-over-year,
reaching an average of $79.78 per square foot.
At the same time, leasing activity continued to slow. At the end of the
first quarter, five million square feet in new leases had been signed, about
8 percent off compared to first quarter leasing in 2007.
"Office leasing has slowed in the first quarter in direct response to
economic uncertainty," said Joseph R. Harbert, chief operating officer for
Cushman & Wakefield’s New York Metro Region. "Although we have not seen
financial industry write-offs turn into major layoffs in New York, we have
seen that financial services sector leasing demand has weakened."
The overall vacancy rate for Manhattan was 6.1 percent at the end of the
first quarter, up from 5.7 percent at the end of 2007. This is still
substantially below equilibrium of 7 to 9 percent. Equilibrium is the point
at which neither tenants nor landlords are perceived to have an upper hand
in negotiations. The vacancy rate for sublease space remained steady
year-over-year, ending the first quarter at 1.1 percent, an indicator that
we have seen few major blocks of sublease space hit the market.
"Commercial real estate is facing an uncertain economy from a position of
fundamental strength," said Bruce Mosler, Cushman & Wakefield's president
and chief executive officer. "Until this quarter, years of uninterrupted job
growth fueled office leasing and investment demand and limited new
construction kept supply in check in most major U.S. markets. On top of the
fundamentals, New York, in particular, has a position of strength stemming
from its reputation as the global financial and business capital."
Advertising agencies – buoyed by large deals like Ogilvy & Mather’s
564,000-square-foot lease at 636 11th Avenue – accounted for 15.8 percent of
all new leasing activity, up significantly from 6.4 percent in 2007. Banking
and financial services firms, which have consistently accounted for the
majority of new leases, ranked second in the first quarter, accounting for
15.3 percent of all leasing activity, down from 30.7 percent at the end of
last year. Legal services and business services, two industries that support
financial services, both increased and accounted for 13.5 percent and 11.5
percent of leasing activity, respectively.
INVESTMENT SALES
After a record 2007 with approximately $48.5 billion in commercial real
estate sales, volume slowed during the first quarter. Preliminary estimates
recorded approximately $5.1 billion in transactions closed or under contract
at the end of the first quarter.
The first quarter of 2008 was down significantly from the first quarter of
2007, largely due to uncertainty in the financial and debt markets and a
lack of product for sale.
"Investors – like office tenants – are pausing to gauge the uncertainty in
the economy and what impact it may have on the office leasing market," said
Mr. Harbert.
Though minimal office space has been put back onto the market to date,
investors have expressed short-term concerns about the leasing market, as it
is unclear how much space may be given back as sublease space once companies
adjust to the new economic realities.
"Despite the slowdown, a significant amount of capital is still focused on
the Manhattan market," said Mr. Harbert, "and confidence is high over the
long-term."
The supply constraints, which characterize the Manhattan market, taken
together with a lack of new development and high barriers to entry, continue
to keep the city on investors’ radars.
The current lending environment has caused a shift in the investor profile,
with a noticeable increase in activity from foreign buyers and institutional
investors. Foreign investors accounted for 45 percent of sales closed and
under contract in the first quarter, a sharp contrast to last year when this
type of investor accounted for only 15 percent of Manhattan’s sales volume.
"Recent actions by the Federal Reserve and the major financial institutions
have made it clear that efforts are being made to recognize losses and put
them behind us," said Mr. Harbert. "This is promising for the marketplace,
and has helped to build confidence."
RETAIL
The upper tier of Manhattan’s retail market remained strong in the first
quarter of 2008. Prime retail submarkets – namely Fifth Avenue and Soho –
saw robust leasing velocity and rent escalations. Two high-profile leases on
Fifth Avenue – Tommy Hilfiger at 681 Fifth Avenue and Diesel at 685 Fifth
Avenue – increased asking rents there to $2,000-plus per square foot from
$1,500 at this time last year.
In Soho, average asking rents increased to $280 per square foot, with
available space on Broadway averaging $386 per square foot and Spring Street
averaging $377 per square foot.
Though trouble in the economy has had an effect on several national
retailers who announced store closings, Mr. Harbert noted that the impact
has been felt more nationally than locally.
"Because we are a supply-constrained city, we’re still seeing strong demand,
especially from foreign retailers crossing over into the Manhattan market,"
he said.
In addition to foreign retailers, overseas tourism has boosted the market,
benefiting from the weak U.S. dollar. Despite declining consumer confidence,
the Manhattan market has so far not been handicapped by the national picture»
(CS della Società)
OFFICE MARKET STATISTICS BREAKDOWN
Manhattan 1Q ‘08 4Q ‘07 3Q ‘07 1Q ‘07
Total Vacancy 6.1% 5.7% 5.7% 5.7%
Sublease Vacancy 1.1% 0.9% 1.1% 1.1%
Overall Rent $67.13 $65.08 $62.91 $53.4
Midtown 1Q ‘08 4Q ‘07 3Q ‘07 1Q ‘07
Total Vacancy 6.0% 5.8% 5.6% 5.3%
Sublease Vacancy 1.1% 1.1% 1.1% 1.1%
Overall Rent $78.85 $76.26 $74.47 $62.89
Midtown South 1Q ‘08 4Q ‘07 3Q ‘07 1Q ‘07
Total Vacancy 5.0% 4.7% 4.7% 4.9%
Sublease Vacancy 0.4% 0.3% 0.5% 0.9%
Overall Rent $48.95 $46.89 $45.83 $41.80
Downtown 1Q ‘08 4Q ‘07 3Q ‘07 1Q ‘07
Total Vacancy 7.2% 6.2% 6.7% 7.2%
Sublease Vacancy 1.7% 0.9% 1.0% 1.4%
Overall Rent $50.28 $47.47 $45.86 $40.50
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