Joseph Harbert, president, eastern region for Colliers International
NEW YORK CITY—The New York City commercial office market at the halfway mark of 2017 is showing few blemishes, with higher leasing activity and increased capital values and asking rents that are either stable or higher in many Manhattan markets.
Commercial brokerage firms Colliers International in its mid-year report on the commercial office market in Manhattan states that record low unemployment has fueled tenant demand throughout the borough. At 4.2% in May 2017, New York City’s unemployment rate has been below 5% for the last seven consecutive months, the longest such stretch on record.
While some real estate analysts have pointed out that the New York City office market has been weakening of late, Colliers points out that mid- to large-sized lease transactions between 25,000 square feet to 99,000 square feet totaled 5.29 million square feet in Manhattan in the first half of this year, on par with the 5.31 million square feet registered for the first six months of 2016.
“The office market will continue to be strong throughout 2017,” says Joseph Harbert, president, eastern region for Colliers International. “With equilibrium level availability, tenants have ample opportunities to strike reasonably good deals, especially in Midtown.”
Manhattan’s office market posted 17.79 million square feet of leasing activity overall in the first six months of 2017, nearly reaching the 17.84 million square feet registered in the first half of 2016.
The borough’s overall availability rate held steady at 10.1%, down 0.2 percentage points since year-end 2016 and up 0.2 percentage points year-over-year, Colliers reports. Absorption was a positive 489,721 square feet in the first six months of this year, a stark reversal from the negative 1.71 million square feet posted in the first half of 2016.
Average asking rents at the end of June stood at $73.07-a-square-foot, slightly higher than the $72.94-a-square-foot asking rent posted a year earlier.
Leasing activity in Midtown was down 9% from last year’s mid-year levels, while lease transactions in Midtown South were relatively stable, falling less than 1% from year-to-year.
The clear-cut geographic winner by far was Downtown, posting nearly 3.69 million square feet in lease deals in the first six moths of this year, compared to 3.2 million square feet for the first six months of last year and 1.9 million square feet for the second half of 2016. Colliers notes that Downtown’s average asking rents passed the $60-a-square-foot threshold for the first time on record, finishing the first half of this year at $63.46-a-square-foot. At the end of last year the asking rent stood at $59.01-a-square-foot. At mid-year 2016, the Downtown asking rent was $58.24-a-square-foot.
In terms of the capital markets climate, Scott Latham, vice chairman, capital markets for Colliers, says that despite a falloff in deal velocity, the market is still enjoying significant capital appreciation. “With longer hold periods and less sensitivity to IRR’s, cap rates continue to compress as investors both domestic and global have placed a significant premium on Manhattan real estate given the safety, security and capital appreciation it provides against other investment products.”
The average price per-square-foot at mid-year 2017 was $911-a-square-foot, up nearly 7.5% as compared to mid-year 2016. Midtown Class A values rose 12.5% over the same period to $1,228-a-square-foot.
Colliers reports that there are three pending commercial office deals totaling $1.6 billion, including a partial interest in 1515 Broadway and 375 Hudson St., as well as the sale of 109-11 West 27th St.