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5 Takeaways From Manhattan Office's Down Year In 2016

While much of the recent bad press around NYC real estate is surrounding the beginning of the luxury condo slowdown, the Manhattan office market in 2016 showed there’s plenty of hand-wringing to go around. Here are our main takeaways:

Leasing Slows Down, Tenants Stay Put

55 Water St. in Lower Manhattan

Not since the latter days of the Great Recession did New York City office tenants lease as little space as they did in 2016. 26.4M SF of leases were signed in 2016, according to JLL research, and half of the 10 biggest office deals were renewals.

The biggest deal of the year was McGraw Hill Financial’s 900k SF renewal at 55 Water St (above). The second-biggest was UBS’s renewal at 1285 Avenue of the Americas, for 891k SF.

JLL blamed political uncertainty for the sluggish tenant activity, and predicted a bounce-back year in 2017, led by the 850k SF LOI BlackRock signed for 50 Hudson Yards, which is expected to be signed in the next few months. 

Vacancy Is On The Rise, And More Supply Is Coming


To go along with the lackluster leasing, Manhattan’s vacancy rate climbed over 10% for the first time since 2013. The combination contributed to negative 4M SF of net absorption, according to Colliers International research. More than half of Manhattan’s 3M SF of newly delivered office space came at 10 Hudson Yards, which opened in May. No office buildings delivered Downtown, and 1M SF of new space delivered in Midtown South.

If the office market couldn’t handle 3M SF of new buildings in 2016, landlords are really crossing their fingers for a huge rebound in 2017. 13.4M SF of offices is under construction, according to JLL, 44% of which is pre-leased. That leaves more than 5.9M SF of new construction looking for tenants, which has to make owners of aging office buildings even more nervous, or getting ready to reposition themselves.

Midtown Continues Its Decline

A rendering of L&L Holding Co.'s 425 Park Ave. redevelopment

While Midtown East’s impending rezoning gives reason for hope, the near term is looking pretty ugly for Midtown owners. Exclude the Penn Plaza/Garment District, which includes Hudson Yards and its 1.3M SF of positive absorption, and Midtown saw nearly 2M SF of negative net absorption, with vacancy rates climbing almost every month of the year, according to JLL.

Midtown had a strong October, and one deal, The Citadel’s lease for the top floors of 425 Park Ave (above), set a record for the most expensive per-SF lease in NYC history. But with more new deliveries coming in 2017 in Midtown, expect concessions to keep going up.

The Tech Sector's Growth Has Stopped

One World Trade Center

There are a few huge tech firms looking for space, notably Spotify’s massive requirement and rumored negotiation at the World Trade Center (above) and Amazon’s latest 250k SF search. But, as JLL research shows, the technology sector in NYC saw year-over-year employment losses in each of the last six months of 2016. As a result, technology, advertising, media and information (the TAMI sector) leasing declined 15% from 2015, when many might have expected growth.

“A talent shortage, investor selectivity and recent political and economic uncertainty have all weighed on the total job count throughout the year,” JLL’s report stated. “As a result, subdued employment growth has impacted leasing volume in tech and the larger TAMI sector.”

Office Sales, And Prices, Dropped From Astronomical Highs


While 2016’s leasing lull may have taken the city by surprise — who could have predicted Brexit and Donald Trump’s election rise? — the drop in Manhattan office transactions and prices was easy to see coming after the historically anomalous rocket ship that was NYC’s 2015 capital markets.

There were 88 building sales in 2015 for a total of $28.7B at an average — we’ll repeat, an average — of $974/SF. 62 sales occurred in Manhattan in 2016 totaling $21.1B and an average price $99/SF lower than 2015.

Rather than the usual suspects buying up Manhattan buildings, 45% of all properties traded were acquired by foreign buyers. Still, the two biggest sales of the year, 787 Seventh Ave (above) and 1285 Avenue of the Americas, went to domestic buyers in CalPERS and a JV of RXR Realty and David Werner, respectively.