Manhattan Office Sees Highest Negative Absorption Since 2011
Manhattan's office market hasn't heard the words "negative" and "absorption" in succession much lately. But as a look at some of Q1's market reports shows, it's no reason to panic.
Leasing is up—and not by a small amount. Colliers puts Q1’s 9.2M SF of leasing activity at 11% above Q1 2015.
The increased leasing activity’s helped nudge up the average asking rent across submarkets to $72.46, according to Colliers—that’s 1.2% shy of the record high.
But while the average asking rent is healthy, JLL’s Jason Schwartzenberg tells us he’s seeing some landlords drop their asks—especially for space that doesn’t have anything special about it, like spreads on lower floors or in buildings that are low on amenities. But he says rents on tower floors and in top-flight buildings have stayed put.
Who’s on the hunt for space? Albeit taken from a small sample size, the perception that startups are a driver of leasing is supported by a recent survey conducted by The Square Foot. It reached out to 75 startups in the city and found that over half—52%—are in the market for a new office, or will be in within six months.
Of those surveyed, the standouts for most important factors to consider were location and price. Amenities, with just 12% of respondents ranking it at the top of their lists, weren't even close.
But that doesn’t mean leasing activity is keeping up with supply. According to Colliers, last quarter's 1.9M SF of negative absorption in Manhattan was the highest since 2011. This is owing in part to large blocks opening up at 390 Madison Ave, 485 Lexington Ave and 1325 Sixth Ave.
While some high-profile big blocks were partially or fully gobbled up last quarter, like Salesforce’s 210k SF spread at 1095 Sixth Ave (shown), CBRE’s research says there are still plenty of large blocks looking for suitors.
As of February, there were 58 contiguous pieces of space larger than 100k SF in Manhattan, accounting for just over a third of available space.
One of those blocks, 613k SF at 375 Pearl St, was big enough that it helped bump Lower Manhattan’s Class-A vacancy rate up to 12.6%, up 130 basis points over Q4 last year, according to Cushman & Wakefield’s Q1 Manhattan office report.
The Square Foot CEO Jonathan Wasserstrum says we should look for maturing tech companies to take bigger footprints, potentially eating up some of that space.
But, Jonathan cautions, since much of the large blocks are being vacated by financial services and law firms that have a higher SF-per-employee ratio than most TAMI users, bigger leases for tech companies may not be as big as you’d think.
He says law firms, for example, tend to be in the 500 to 700 SF-per-employee range, while in TAMI it’s almost always under 400 SF-per-employee.
Having a little more available space than we’ve gotten used to in recent quarters isn’t anything to get worked up about, though, he says.
“It just gives more options for tenants, Jonathan says. “You need some vacancy to have an efficient market.”