Market Research



Manhattan office leasing has gotten off to a robust start in 2016, according to Cushman & Wakefield, with both leasing activity and asking rents on the rise through February.

Manhattan leasing activity exceeded 2 million square feet in each of the first two months this year, with the year-to-date total of 4.4 million square feet representing a 3.2 percent jump from the first two months of 2015, the commercial brokerage said in its monthly Manhattan office market report.

Asking rents in all three major Manhattan submarkets also increased from last year, taking overall Manhattan asking rents to $72.80 per square foot, compared to $69.46 per square foot through February 2015. The Downtown office market, in particular, saw asking rents top $60 per square foot “for the first time ever,” Cushman said.

Manhattan office vacancy, meanwhile, stood at 8.7 percent through February, down 0.5 percent from the same point last year. In the Midtown market, office vacancy stood unchanged from January at 9.1 percent and “has remained in the single-digits since year-end 2014,” according to Cushman.

The notoriously tight Midtown South office market, meanwhile, continued to get tighter – falling to 6.1 percent in February, down from 6.9 percent a year ago. Cushman noted “a significant boost in leasing” in Midtown South thanks to tech giants at Vornado Realty Trust’s office building at 770 Broadway.

The numbers are notably positive considering concerns aired early this year from key office market players, regarding what bearish economic indicators — like an expected slowdown in job growth in the city — could mean for Manhattan office leasing.

“I think there was that [negative] psychology at the beginning of the year, when stocks were dropping,” Richard Persichetti, Cushman’s Tri-State research director, told The Real Deal. “[The year] started slow in other aspects of the economy, but there were strong U.S. job numbers coming out last week and now we’re seeing strong leasing numbers for the first two months.”

In fact, the first two months of 2016 proved the third-strongest start to a year since 2002 as far as Manhattan office leasing was concerned, Persichetti noted, with only 2011 and 2014 outperforming this year so far.

He also pointed to a resurgent financial services sector, which is now “starting to take off” after taking a backseat to the TAMI tenants that have driven much of the current commercial office leasing cycle. That has benefited the Midtown office market, where financial services tenants have accounted for almost 41 percent of year-to-date leasing activity, according to Cushman.

But the TAMI sector continued to dominate Midtown South and Downtown through the first two months of 2016 — with technology, advertising, media and information services tenants representing nearly 42 percent and nearly 65 percent, respectively, of all leasing activity in those office markets.





Office space
Manhattan office leasing volume has whipsawed back and forth during the first six months of the year. Continuing that trend, last month saw a sharp pullback of activity.
Preliminary leasing totals for June show only about 1.4 million square feet of office space was leased in Manhattan’s three major markets. That’s far below the 4.9 million registered in April and the 3.5 million in May, data from commercial firm Cassidy Turley showed.
Depending on the final tally for June, it may be the slowest leasing month in 2012 — behind January, which saw 1.6 million square feet leased.
“The market’s been a little choppy,” said Kenneth Salzman, a senior managing director with commercial brokerage Lee & Associates. “There is still a fair amount of uncertainty in the market. There are a lot of short-term [approximately three-year] renewals being done in lieu of expansion.”
In fact, the largest relocation lease signed last month was for only for 68,000 square feet, Cassidy Turley figures showed. That was the City University of New York’s School of Professional Studies taking several floors at 116 West 32nd Street between Sixth and Seventh avenues.
In a sign that the figures may represent a bona fide (albeit slight) slowdown, the overall Manhattan availability rate — which measures the amount of space available now or in the next 12 months — rose by 0.2 points to 10.5 percent in June compared with May, according to Cassidy Turley. Yet despite that softness, asking rents rose by $0.49 per foot to $54.70 per foot.
Even as the overall Manhattan office leasing market was tepid, landlords and tenants in Midtown seemed to be holding steady.
In fact, the total number of available blocks of 100,000 square feet or more — a metric often used to gauge the health of the market for large tenants — has remained about flat in Midtown over the past two years.
In May 2010 there were 43 blocks on the market. That number dropped to 39 just 12 months later. And this past May, there were 40, Cassidy Turley figures revealed.
According to Cassidy Turley, the largest available space in Midtown is 712,000 square feet at the Durst Organization’s
4 Times Square, which is being vacated by publishing powerhouse Condé Nast in 2014. The firm is, of course, moving to
1 World Trade Center.
Elliot Bogod, president of commercial and residential firm A&I Broadway Realty, said the slowdown might just be summer doldrums.
“We saw a lot of deals in May, but in June there has been a little bit of a slowdown,” he said, referring to Manhattan overall.
The availability rate in Midtown rose by 0.3 points to 11.2 percent in June, yet the asking rent rose by $0.41 per foot to $62.70 per square foot during the same time, Cassidy Turley data showed.
Midtown South
Although Midtown South’s availability rate rose by 0.1 points to 8.6 percent, it remained the tightest in Manhattan.
In an example of the types of deals getting done last month, an expanding marketing agency called Pulse Creative signed a five-year lease for 5,000 square feet on the third floor of 267 Fifth Avenue, an 11-story building at the corner of 29th Street. Gregory Cohen, president of the Cohen Group at the commercial and residential firm Rutenberg, represented the landlord and tenant in the deal.
He said approximately 10 to 15 companies came to look at the space over a month and a half, including hedge funds, advertising firms and apparel companies. But not all of them made strong enough offers.
“We received about five offers, a lot were lowball,” he said. “We asked for $47 per foot, then went to $40. We ask high then get people in and then we start negotiating.”
That rent range is in the ballpark for the Midtown South area, where average asking rents rose by $0.20 to $45.91 per square foot last month from May. 
Downtown — which has been the weakest market among the three for much of the past several years — got a lift last month. Indeed, it played host to Manhattan’s two largest deals.
Both of those leases were renewals inked by the City of New York. The first was for 373,000 square feet at SL Green Realty’s 100 Church Street and the second was for 208,000 square feet at 75 Park Place, owned by Jack Resnick & Sons.
Overall, June was a positive month for the Downtown market, with the availability rate declining by 0.2 points to 10.6 percent and the average asking rent rising by $0.21 per foot to $38.28 per foot.
Retail space 
The Times Square area has seen a 15 percent increase in the number of households since 2004, the study, by HR&A Advisors and the Times Square Alliance, shows. The majority of its residents are between the ages of 25 and 34. The number of households in Times Square in 2004 totaled 33,360, while the figure is now 38,272.
“It’s a real New York neighborhood now,” said HR&A’s Kate Coburn, who was responsible for the report.
The report attributes the increase in residents to the “explosive growth” in nearby Hell’s Kitchen and the diversification of high paying jobs in finance, professional services, media, arts and publishing based in and around Times Square. Since 2004 the number of Times Square employees has also increased 15 percent to 200,000, with one in four Midtown employees working in the neighborhood.
“The demand created by these young, well-educated, high-earning residents and the 200,000 area employees can stimulate continued economic growth in the Times Square area,” the report speculates, “particularly growth in the retail and food & beverage sectors. The Times Square area can capture up to $2.1 billion in potential earnings in these two sectors.”
Though the Times Square market is typically thought of as geared towards tourists, more than half of those potential earnings could come from money spent by residents and office workers, the report says.
However, Lisa Rosenthal, a retail broker at the Lansco Corporation, said that while Times Square will always be a top retail destination, its increasing number of residents may not be a driving factor for tenants to lease space in the area. “While residents and potential shoppers are a great addition to the retailers, I’m not so sure that in this particular instance that really drives retailers to Times Square,” she said.
Times Square will always be a huge draw for tenants, she noted, but its appeal is based around the excitement and novelty of having its name and logo featured at one of the world’s most famous junctions as opposed to its ability to attract resident New Yorkers. She added that the additional residential population is potentially more significant for retailers and restaurants considering space west of Eighth Avenue, as those stores primarily attract local shoppers.
Certainly, retailers and investors have appeared bullish on the Times Square market in recent months. Retail rents also up. The “bowtie” heart of Times Square, from 42nd Street to 47th Street, experienced a 28.3 percent jump in the first quarter of 2012, according to a recent report by Cushman & Wakefield, averaging $1,967 per square foot.
The Midtown-based real estate investment trust SL Green Realty and partner Jeff Sutton purchased a small, mid-block office building on 46th Street earlier this month, which they plan to demolish in order to expand the selling area at a large retail project they are developing in Times Square, The Real Deal previously reported. And 1 Times Square has finally landed a tenant for part of its 55,000-square-foot vacant retail space; a Russian restaurant company, backed by chain Global Food International, leased 25,000 square feet on the ground floor and mezzanine, last month, the Wall Street Journal reported.
Developers may also be looking to cash in on increased demand for residential properties in the neighborhood. Developer Larry Silverstein’s Silverstein Properties is said to be planning a 60-story residential and retail tower nearby at 514 Eleventh Avenue, between 40th and 41st streets.



from: The Real Deal