NYC at Night

Leader or Lagger? Perspective on Manhattan’s Office Market

Posted on October 6, 2013 · Posted in Leasing

Despite above average leasing volumes, vacancy rates have increased in all three major Manhattan markets. As of August, Midtown, Midtown South, and Downtown vacancy rates all increased since their year-end 2012 marks — from 9.4% to 11.2%, 7.1% to 7.3%, and 8.8% to 11.3%, respectively. Consequently, the overall Manhattan vacancy rate in August increased to 10.6% from 9.4% at the end of 2012.

There are two reasons for this increase: new construction–1.5 million square feet in Midtown and Midtown South– and slower employment growth. Despite overall growth in the local economy, industries that tend to use offices haven’t experienced as much growth. Since last December, total employment in New York City has increased by approximately 50,000 jobs, however, employment in the main office-occupying industries such as financial, professional, business, and information services, only increased by 300 jobs over the same period.

Despite sluggish office market conditions in recent months, Manhattan is doing well when compared to other central business districts (CBDs). At 10.6% the vacancy rate in Manhattan is well below the national average for CBDs of 13.4%, and is even further below the suburban vacancy rate of 17.4%. Of the 22 CBDs in the U.S with at least 20 million square feet of office space, Manhattan has the fifth lowest vacancy rate. In fact, the three submarkets that compose the Manhattan market are all within the 10 lowest vacancy rates in the nation. Additionally, Manhattan rents are among the highest in the U.S. Average asking rents as of August in Manhattan were $61.95 per square foot (psf). These rents ranged from Downtown’s low of $45.88 psf to a high of $67.99 psf in Midtown. There were two other CBDs with asking rents above $50 psf at the end of the second quarter–San Francisco and Washington D.C. at $53.38 psf, and $50.41 psf, respectively. Thus, despite suboptimal conditions in the market right now, the Manhattan office market is one of the healthiest markets in the nation all things considered.

Photo credit: flw_c