Spotify’s relocation to 4 World Trade Center was the largest new deal of Q1. Credit: Joe Woolhead
NEW YORK CITY—Despite fears of a slowdown, Manhattan leasing activity in Q1 2017 posted a 2% increase from its five-year quarterly average, according to a new report by CBRE. The borough’s office market’s transaction volume totaled 6.66 million square feet in the first three months of the year.
Quarterly leasing activity is up 19% compared to the same period last year. The availability rate rose 10 basis points from Q4 2016 and 70 bps from one year ago. Quarterly net absorption registered negative 965,000 square feet. The average asking rent was $73.88 per square foot—up roughly 2% quarter-over-quarter and up 1% year-over-year.
“Leasing activity is being driven by product rather than location,” explains Nicole LaRusso, director, research & analytics, CBRE tri-state. “Tenants are looking to upgrade to meet workplace strategy goals and they are migrating to buildings that best meet these needs. This ‘flight to quality’ has led tenants to spread out and grow across the island in a way we did not see in previous cycles.”
In Midtown, year-to-date leasing activity came in at 3.47 million square feet, putting it well ahead of last year’s pace, though the volume of closed transactions tapered off toward the end of the quarter. Net absorption registered negative 470,000 square feet in Q1 2017, the fifth quarter among the last six in which absorption has been negative.
The availability rate has been relatively consistent, hovering between 11.8% and 12% for the last nine quarters. The average asking rent is $80.45 per square foot, making the metric essentially stable over the past quarter and year. Rents remain largely stable, keeping demand—and therefore pricing—for new or renovated product strong.
Meanwhile, leasing activity in Midtown South picked back up to historical averages in Q1, reaching 1.32 million square feet. More than 600,000 square feet of new development was added to the inventory of available space, including 512 W. 22nd St., 61 Ninth Ave. and 412 W. 15th St.
The addition of this new product—much of which boasted asking rents above $100 per square feet—drove the overall average to an all-time high of $74.49 per square foot; an increase of 9% over the previous quarter. The availability rate rose to 10.9%, increasing 120 bps from last quarter and 280 bps from one year ago. .
Leasing activity Downtown totaled 1.87 million square feet in Q1 2017, posting a 45% jump over its five-year quarterly average and a tremendous increase of 286% from the previous quarter. Of the three Manhattan markets, Downtown was the only one with positive quarterly net absorption, at 577,000 square feet.
Tenants continue to migrate to Lower Manhattan, drawn by the availability of large blocks of quality space. Spotify’s 378,000-square-foot relocation to 4 World Trade Center was the largest new deal of the quarter, as well as Downtown’s biggest tech relocation ever. Since 2011, 386 tenants have moved from other markets into Downtown, totaling 12.5 million square feet. Danny Meyer, owner of Union Square Café/Gramercy Tavern and many other eateries, will open a public restaurant and event space on the 60th floor of 28 Liberty St. as restaurateurs head to the area.
Over in Brooklyn, leasing activity was strong in Q1 2017, up 48% from the previous quarter. DUMBO was again the most active submarket, as it continues to attract tenants to new space, including the 500,000-square-foot development project Empire Stores.
The quarter saw a surge in relocation activity, with three Manhattan tenants each signing 50,000-square-foot leases. Concurrently, the number of Manhattan tenant to relocate some or all of their operations to Brooklyn since Q3 2015 hit 20, representing 625,000 square feet of new activity.
New development, totaling 900,000 square feet, increased the availability rate by 30 bps to 18.1% while the pipeline of future development remains robust.