Manhattan - Cushman & Wakefield

MARKETBEAT

Manhattan Office Q1 2017

Economy

MANHATTAN OFFICE

The New York City economy continued to record healthy job growth in the first quarter of 2017; as of February, payroll employment was 7,300 jobs higher than at the end of 2016. Office-using employment increased by 3,200 jobs, led by growth in the financial services sector, which climbed by 4,700 jobs. Employment in the TAMI (technology, advertising, media and information services) sector slowed with only 1,900 jobs created in the first two months of the year. Throughout this cycle, job growth in New York City continually outpaced the nation as a whole, but for the first time in nine years, the city is tracking at approximately the same growth rate as the rest of the country to start 2017.

Economic Indicators Q1 16

Q1 17

New York City Employment

4.3M

4.4M

New York City Unemployment

5.2%

4.3%

U.S. Unemployment

4.9%

4.8%

12-Month Forecast

*Average of first two months of Q1 2017

Market Indicators (Overall, All Classes) Q1 16 Vacancy

9.0%

9.4%

-805,770

876,284

Under Construction (SF)

12.0M

12.6M

Average Asking Rent*

$72.40

$73.37

Net Absorption (SF)

12-Month Forecast

Q1 17

Market Overview

$50 Q1 2017

The Manhattan office market was highlighted by positive absorption and strong leasing activity in the first quarter of 2017. New leasing activity totaled 7.6 million square feet (MSF), 16.0% higher compared to this time last year. Downtown accounted for the largest spike in activity and captured three of the five largest Manhattan new leases of the quarter. Manhattan renewal activity totaled 3.4 MSF, boosting total leasing to a first quarter 17-year high of 11.0 MSF. Despite the robust level of activity, Manhattan’s overall vacancy ticked up by 20 basis points (BPS) to 9.4% during the quarter, triggered by a 27.8% increase in available sublease space, the bulk of which occurred in Midtown South. Manhattan posted 876,284 square feet (SF) of positive absorption in the first quarter of 2017, a result of above-average Midtown and Downtown leasing offsetting an increase in available space.

2016 Q1 2017

Midtown leasing increased by 2.9% from this time last year to nearly 4.3 MSF, largely due to five new and expansion leases exceeding 100,000 SF. Continuing the positive momentum of 2016, Grand Central posted 923,290 SF of leasing activity, a 29.4% uptick from the first quarter of 2016. Tommy Hilfiger’s 196,792-SF lease at 285 Madison Avenue was Midtown’s largest new lease of the quarter, followed by the New York Times’ 158,856-SF sublease at 1271 Avenue of the Americas. Midtown renewal activity reached a first quarter all-time high of 2.8 MSF, accounting for 82.3% of Manhattan’s renewals. The overall vacancy rate increased by 40 BPS during the quarter to 10.0%, marking the first time since November 2014 that Midtown registered a double-digit vacancy. The increase was primarily due to three large blocks of space added to the market—a 370,691-SF space at 75 Rockefeller

*Rental rates reflect gross asking $psf/year

Overall Net Absorption/Overall Asking Rent 4-QTR TRAILING AVERAGE 8,000,000

$75

6,000,000

$70

4,000,000

$65

2,000,000 $60

0

$55

-2,000,000 -4,000,000

2011

2012

2013

2014

Net Absorption, SF

2015

2016

Asking Rent, $ PSF

Overall Vacancy 12% 10% 8%

Historical Average = 9.5%

6% 4% 2% 2011

2012

2013

2014

2015

cushmanwakefield.com I 1

MARKETBEAT


Tommy Hilfiger’s 254,516-SF sublease block that entered statistics at 601 West 26th Street drove Midtown South’s overall vacancy rate up 110 BPS during the quarter to 7.7% and bumped Chelsea’s overall vacancy rate to 8.2%, the highest quarterly vacancy posted since year-end 2009. Leasing activity in Midtown South fell by 5.1% from this time last year, largely attributed to a decline in leasing transactions above 50,000 SF. The largest lease of the quarter was Live Nation’s 99,588-SF transaction at 430 West 15th Street. A reduction in leasing, combined with a sharp increase in available sublease space, resulted in 485,488 SF of negative absorption. Overall asking rents increased by 0.9% during the quarter, primarily due to the completion of 413 West 14th Street, which boosted Midtown South’s asking rents to a new record high of $71.48 PSF. Downtown new leasing soared by 96.8% from this time last year to 2.0 MSF, nearly reaching the 2.1 MSF leased through the first half of 2016. The increase in Downtown activity is mainly attributed to four new leases exceeding 100,000 SF, which accounted for 51.5% of Downtown’s first quarter activity. The largest new transaction was Spotify’s 378,819-SF lease at Four World Trade Center, followed by the New York State Attorney General’s office lease for 342,484 SF at 28 Liberty Street. Strong leasing velocity lowered Downtown’s overall vacancy 100 BPS during the quarter to 9.2% and pushed Class A vacancy 150 BPS lower to 10.6%. World Trade Center’s vacancy fell 280 BPS over the past three months to 11.3%, representing the lowest quarterly vacancy rate in 10 quarters. Vigorous Downtown leasing led to 1.1 MSF of positive absorption, the highest level achieved since the fourth quarter of 2014 when absorption registered 1.8 MSF. Downtown asking rents fell 1.3% during the quarter to $58.54 PSF, partially due to the leasing of higher-priced space along with asking rent reductions at 200 Liberty Street.

Available Sublease Space MANHATTAN’S SUBLEASE SPACE IN Q1 2017 IS AT A 10-QUARTER HIGH 8.0

SF in Millions

7.0 6.0 MSF

6.0 5.0 4.0 3.0 2.0

2012

2013

2014

2015

2016

Q1 2017

Manhattan New vs. Renewal Leasing Activity 2017 HAS THE HIGHEST LEVEL OF FIRST QUARTER RENEWAL ACTIVITY ON RECORD

12.0 10.0

SF in Millions

Plaza, 221,850 SF at 777 Third Avenue and 203,900 SF at 399 Park Avenue. Despite the increase in vacancy, Midtown registered 248,589 SF of positive absorption as strong leasing compensated for the increase in available space. Although Midtown overall asking rents increased a nominal 0.4% during the quarter to $78.73 per square foot (PSF), Midtown’s Class A direct asking rents climbed 2.1% to $88.93. The increase was mostly driven the by higher-priced space that entered the market during the quarter at the recently renovated 75 Rockefeller Plaza.

8.0

1.1 7.7

1.3 6.7

6.0

3.3 1.1 5.9

4.0

0.7 5.4

5.0

7.6

5.7

9.4 2.4

2.5

1.8 7.0

5.8

5.6

Q1 12

Q1 13

1.6

2.7 7.6 6.6

3.1

2.0 0.0

2.2

3.4

1.3

2.3

Q1 04

Q1 05

Q1 06

Q1 07

Q1 08

Q1 09

Renewal

Q1 10

Q1 11

Q1 14

Q1 15

Q1 16

Q1 17

New Lease

Outlook • Nearly 6.0 MSF of leases under negotiation are likely to close over the next three quarters • Steady leasing combined with a limited supply of new construction completions is projected to put vacancy at equilibrium by the end of 2017 • Sublease space—as a percentage of the total available supply—is currently at a 10-quarter high and will likely remain above average throughout the year cushmanwakefield.com I 2

MARKETBEAT

Manhattan Office Q1 2017 SUBLET VACANT (SF)

DIRECT VACANT (SF)

OVERALL VACANCY RATE

CURRENT QTR YTD OVERALL YTD LEASING OVERALL NET NET ABSORPTION ACTIVITY ABSORPTION (SF) (SF) (SF)

UNDER CNSTR (SF)

OVERALL AVERAGE OVERALL ASKING RENT AVERAGE ASKING (ALL CLASSES)* RENT (CLASS A)*

SUBMARKET

INVENTORY (SF)

East Side/UN

21,551,123

400,492

1,283,166

7.8%

-436,589

-436,589

157,717

0

$72.99

Grand Central

42,759,706

530,729

4,272,691

11.2%

138,075

138,075

923,290

2,358,396

$70.55

$73.31

Madison/Fifth

24,645,391

190,996

2,602,213

11.3%

-54,048

-54,048

367,132

0

$100.59

$107.83

Murray Hill

14,232,299

290,973

730,542

7.2%

9,358

9,358

193,481

0

$59.89

$62.68

Park Avenue

21,842,808

712,426

2,002,343

12.4%

-360,987

-360,987

249,730

728,700

$90.47

$90.47

Penn Station

16,095,431

255,660

1,489,251

10.8%

-134,036

-134,036

195,129

6,203,770

$70.81

$77.83

Sixth Avenue/Rock Center

41,461,063

859,287

3,617,616

10.8%

507,335

507,335

905,404

0

$88.19

$89.22

Times Square South

30,209,473

462,516

2,202,620

8.8%

199,652

199,652

699,372

0

$60.21

$75.33

West Side

30,644,801

225,415

2,221,699

8.0%

379,829

379,829

568,867

241,064

$75.20

$80.40

243,442,095

3,928,494

20,422,141

10.0%

248,589

248,589

4,260,122

9,531,930

$78.73

$84.64

15,313,313

514,912

738,594

8.2%

-181,452

-181,452

296,206

378,036

$64.29

$85.22

4,882,853

54,572

122,280

3.6%

-22,752

-22,752

42,624

0

$73.93

$115.00

Hudson Square/West Village

11,054,152

258,514

946,175

10.9%

-57,980

-57,980

212,746

145,741

$79.89

$92.66

Madison/Union Square

32,057,725

435,065

1,691,321

6.6%

-72,791

-72,791

702,784

0

$68.80

$81.83

MIDTOWN TOTALS Chelsea Greenwich/NoHo

SoHo MIDTOWN SOUTH TOTALS City Hall

$74.15

3,940,710

32,886

399,342

11.0%

-150,513

-150,513

60,728

60,915

$74.76

N/A

67,248,753

1,295,949

3,897,712

7.7%

-485,488

-485,488

1,315,088

584,692

$71.48

$88.06

7,690,533

16,443

652,975

8.7%

-35,254

-35,254

50,893

0

$50.05

$49.73

Financial East

34,276,501

413,069

2,516,163

8.5%

355,307

355,307

674,280

0

$56.18

$58.89

Financial West

5,986,809

75,780

840,499

15.3%

-125,355

-125,355

45,711

0

$53.12

$56.16

13,106,300

75,244

972,817

8.0%

122,531

122,531

238,076

0

$57.82

$62.95

5,109,526

15,570

46,423

1.2%

111,734

111,734

121,047

0

$69.43

$70.30

World Trade

22,331,586

197,051

2,321,254

11.3%

684,220

684,220

912,610

2,491,861

$65.25

$66.05

DOWNTOWN TOTALS

88,501,255

793,157

7,350,131

9.2%

1,113,183

1,113,183

2,042,617

2,491,861

$58.54

$61.28

MANHATTAN TOTALS

399,192,103

6,017,600

31,669,984

9.4%

876,284

876,284

7,617,827

12,608,483

$73.37

$79.59

Insurance TriBeCa

*Rental rates reflect gross asking $psf/year

Key Lease Transactions Q1 2017 PROPERTY

SF

TENANT

TRANSACTION TYPE

SUBMARKET

1345 Avenue of the Americas

992,043

Alliance Bernstein

Renewal*



793,687

21st Century Fox

Renewal/Expansion*



444,000

NewsCorp

Renewal*


SF

SELLER / BUYER

PRICE / $PSF

SUBMARKET

1,600,000

Paramount Group / GIC Real Estate

$1.0B / $643

Financial East

*Renewal portion not included in leasing statistics

Key Sales Transactions Q1 2017 PROPERTY 60 Wall Street 250 West 54th Street

163,000

Ascot Brokerage / Zar Property Group

$83M / $510

West Side

42 West 14th Street

151,540

Samson Associates / The New School

$153M / $1,010

Greenwich/NoHo

BUILDING OFFICE RSF

OWNER/DEVELOPER

MAJOR TENANT

SUBMARKET

79,518

Highgate Holdings, Inc. / Rockpoint Group / Meilman Family

Argo Group

Chelsea

Completed Construction Q1 2017 PROPERTY 413 West 14th Street


MARKETBEAT


OFFICE SUBMARKETS MANHATTAN

WEST SIDE

FIFTH/ MADISON

PARK AVENUE

SIXTH AVENUE/ROCK CENTER

For more information, contact: Richard Persichetti Regional Research Director Tri-State and Northeast Tel: +1 212 954 0917 [email protected]

909 Third

EAST SIDE/UN

Lori Albert

Queens Research Director Tel: +1 212 841 7876 [email protected]

GRAND CENTRAL TIMES SQUARE SOUTH 25W 3615W 36 13

MURRAY HILL

MIDTOWN

PENN STATION

MIDTOWN SOUTH

305 Fifth

MIDTOWN MIDTOWN SOUTH

Cushman & Wakefield 1290 Avenue of the Americas New York, NY 10104 cushmanwakefield.com

253

223 E 26 238 E 26

MADISON SQUARE/ UNION SQUARE

CHELSEA

230 W 17

GREENWICH VILLAGE/NOHO

HUDSON SQUARE/ WEST VILLAGE

SOHO

MIDTOWN SOUTH DOWNTOWN

TRIBECA CITY HALL

MIDTOWN SOUTH DOWNTOWN

WORLD TRADE/ WORLD FINANCIAL INSURANCE

New Jersey FINANCIAL WEST

FINANCIAL EAST

About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 43,000 employees in more than 60 countries help investors and occupiers optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter. Copyright © 2017 Cushman & Wakefield. All rights reserved. The information contained within Brooklyn this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.
