NEW YORK CITY—CBRE reports Manhattan office leasing activity totaled 28.43 million square feet in 2017, up from 22.90 million square feet in 2016, and 6% more than its five-year annual average.
“2017 was an exceptional year for office leasing, due to a vibrant economy that drove numerous large-block transactions,” says Nicole LaRusso, director, research & analysis, CBRE Tri-State. “With positive economic forces at work in the local, national and global economies, we expect 2018 to follow a similarly positive course.”
The FIRE (finance, insurance, real estate) industries accounted for 38% of the total office leasing, the highest percentage in terms of square footage. Transactions for new or renovated buildings drove these numbers including headline deals such as Blackrock’s lease at 50 Hudson Yards, Mastercard’s space at 150 Fifth Ave. and JP Morgan Chase Digital’s expansion at 5 Manhattan West.
Insurance firms such as Guardian Life Insurance Company also signed onto 10 Hudson Yards and AON committed to relocating to One Liberty Plaza.
Real estate expanded with flexible workspace providers including WeWork, Regus, Knotel and The Yard. In 2017, shared and serviced office space providers leased 1.1 million square feet. The CBRE report noted the number of transactions with these types of tenants rose to 38, its highest annual level.
CBRE also reported the TAMI (technology, advertising, media and information) sector, second to FIRE accounted for 22% of the office leasing pie. This was down from its 28% average of the last five years but was unsurprising based on challenges still faced by media and news organizations still adjusting to the disruption caused by the internet.
Spotify’s move and expansion at 4 World Trade Center and MongoDB’s relocation to 1633 Broadway not only made headlines but helped drive up TAMI leasing numbers in 2017.
Tenants in 2017 predictably preferred new and renovated buildings. Considering both new deals and renewals, the 17.95 million square feet of total leasing space, with areas of 50,000 square feet or larger, tenants rented new or substantially renovated product totaling 7.87 million square feet or 42% of the buildings. This was an increase from 2016 when new and significantly renovated buildings accounted for 4.84 million square feet or 37% of the leases.
The CBRE report found rents remained stable year-over-year, at $72.91 per square foot at the end of 2017. This represented a second consecutive year of flat annual rent growth. Last year was also a year of landlord concessions with average tenant improve allowances increasing from $78 per square foot in 2016 to $89 per square foot in 2017.
With availability remaining almost the same year-over-year at 11.5%, although new office developments and substantially renovated products are entering the market, CBRE experts do not anticipate an excess of available office space to drive down rents in the upcoming year. The report notes that several Class A office properties vacated for new construction will not be available until at least three years.
Nonetheless, even with the robust office leasing, last year’s office sales volume dropped 28% compared to 2016. The total volume in 2017 transactions above $30 million amounted to $15.9 billion, the lowest total in five years. The report attributed this to limitations on Chinese investment overseas, fewer 1031 exchange opportunities due to a limit in supply, and the strength of the debt markets resulting in decisions to refinance instead of sell.
The report concluded despite the drop in dollar volume of sales, average price per square foot remained stable, declining less than 2% year-over-year, indicating continued strong investor interest in Manhattan’s office market.