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Manhattan Office Market Soared To Record Levels Again Last Year

Manhattan’s office market hit the highest leasing volume level in nearly two decades last year, showing companies' appetite for new Big Apple offices has not yet been satiated.

Manhattan Office Market Soared To Record Levels Again Last Year
New York City skyline

Thanks to several monster lease deals and healthy job growth, a total of nearly 43M SF of office leases were signed in Manhattan in 2019, according to figures from Colliers International.

That is the highest level since 2001 and almost 3% higher than 2018, itself a stellar leasing year. Leasing activity was 15% above the borough’s five-year historical average, Colliers found.

“This was certainly a year where we had many notable, large leases driving activity,” Colliers Senior Managing Director Franklin Wallach said. "It was an array of industries that really made it so interesting."

While most offices leases are for between 5K SF and 15K SF, a couple of megadeals in any given year have the power to move the needle, even in a market that is seeing significant amounts of new office product.

"Always, the question at the end of the day in the overall Manhattan market, is ‘is the demand keeping up with supply?' And we ended the year at that perfect equilibrium point of 10% [availability]," Wallach said. "You're neither in a landlord-favored market nor a tenant-favored market.”

The average asking rent hit just shy of $78.80 per SF at the end of the year, according to Colliers, which is the second-highest quarterly average on record, and rents increased in 13 of Manhattan’s 18 submarkets.

The rising asking rents were driven largely by the huge new buildings opening up: 2.2M SF of office spaces bigger than 100K SF asking for at least $100 per SF in rent opened in 2019, according to CBRE, driving the city's average asking rent up 10%. More than 21% of all office leasing in Manhattan in 2019 was of new product, according to Savills.

All those openings drove the city's net absorption to negative 3.26M SF, according to Colliers, only the second time the borough’s absorption was negative in the last 10 years. The negative absorption — meaning space vacated or opened vacant — outweighed new leasing by more than 3M SF, and is being driven by the deluge of new supply combined with law firms and other businesses taking less space per employee than in years past.

Manhattan Office Market Soared To Record Levels Again Last Year
Aerial view of Hudson Yards from October 2018.

Tenants in financial services, insurance and real estate (including coworking) took up 36% of leasing activity, followed by technology, advertising, media and information services, which had a total of 32% of the market.

"This was a decade that was very much defined by New York growing into a true tech and TAMI hub,” Wallach said. "So will that trend continue for the next decade? There's nothing to indicate that there's any slowdown."

The year was shaped by multiple major deals, and tech companies generated a large share of the new activity.

Google locked down 1.3M SF at 550 Washington St. for a brand-new campus in July. Facebook in November leased 1.5M SF at Hudson Yards across three separate buildings, bringing the office portion of the megaproject to over 90% leased and marking the social networking site's biggest New York real estate transaction in history.

Meanwhile, advertising giant Publicis Groupe locked down a 960K SF renewal at 375 Hudson St. Cravath, Swaine & Moore signed on to be the anchor tenant at Brookfield’s Two Manhattan West, taking 481K SF there, and WarnerMedia completed its sale/leaseback of 1.3M SF at 30 Hudson Yards.

CBRE Tri-State CEO Mary Ann Tighe
CBRE Tri-State CEO Mary Ann Tighe

The year was also defined by the ongoing shifts in tenant demand for new construction on Manhattan’s West Side and Downtown. Lower Manhattan's leasing market was the star performer of the year, with the area experiencing record rents, leasing activity and tightening availability.

Downtown leasing jumped an eye-popping 70% from 2018 to hit 10.7M SF, smashing the previous record of 10.4M SF set 20 years ago, according to Colliers. Average asking rents hit $64.60 per SF in the fourth quarter, an almost 5% year-over-year jump. Plus, the availability dropped dropped to 10.6%, its lowest rate in 11 years.

"We remember the stories of 15 years ago, saying 'Who's going to lease downtown?' but not just that, 'Who's going to lease space in the [World] Trade Center, will there be demand for it?'” Wallach said, adding that Conde Nast’s decision to leave Times Square for Downtown in 2011 kicked off the start of major migration for tenants around Manhattan. "Ten years later, at the end of 2019, there's no question."

Downtown in 2019, EmblemHealth renewed for 439K SF at 55 Water St., Morgan Stanley renewed and expanded for 1.3M SF at 1 New York Plaza, and Uber and Cozen O'Connor agreed to relocate their New York offices from elsewhere in Manhattan to 3 World Trade Center.

CBRE Tri-State CEO Mary Ann Tighe, who leads the leasing team for 3 World Trade Center, described 2019 as Downtown’s “breakthrough year.”

“Finally, the tenant market got the new Downtown,” she wrote in an email. “[It has] a compelling combination of ideal transit access, proximity to multiple residential neighborhoods preferred by the creative class and millennials — and a great selection of live/play/eat options … The oldest part of New York felt new again, and the market embraced it.”

Midtown South also saw significant gains — leasing volume increased 14.5% from 2018, per Colliers, while average asking rents ticked up 1% to hit nearly $77.

But Midtown, which is facing a branding problem and has lost several major tenants over the last few years, took another hit in 2019.

Leasing volume dropped 25% from 2018, per Colliers figures, to hit 15.85M SF, a six-year low. Nevertheless, asking rents increased to reach $85.80 per SF. While there were major leases, like WeWork’s deal to take space at 437 Madison Ave., the yearly availability went up to 11% — the biggest annual increase in 10 years.

Manhattan Office Market Soared To Record Levels Again Last Year

“The [tenant improvement allowance] amount is most glaring in Midtown, and has never been more important in terms of getting a tenant to commit,” Newmark Knight Frank Executive Managing Director Eric Cagner said.

Savills reported that concessions in Midtown and Midtown South — combining free rent and TI packages — reached $195.75 in 2019, the highest level the brokerage had ever recorded.

While the health of the office market, with its record rents and epic leasing volume, has seemingly been reinforced over the last year, some have voiced concerns about the overall sustainability.

Economic uncertainty, companies' taste for more efficient spaces and the widespread use of concessions are all potential storm clouds.

Cagner said while New York remain a dynamic place, the livability of the city, and companies interest in being here is a crucial part of its future. 

To that point, AllianceBernstein announced in May that it will relocate its headquarters from New York to Nashville, and Carl Icahn said in September that Icahn Enterprises is shutting its New York City and White Plains offices and opening in Miami. JPMorgan is reportedly mulling taking thousands of workers out of the city. 

"I think the political landscape and how policies are handled throughout the city are really meaningful. We saw what happened in Long Island City in regards to Amazon. That was certainly closely tied to the political environment,” Cagner said. “Things such as new corporate tax rates and incentives, these are all they're all a factor in large companies and their decisions about where they'll operate over the next 10 years.”