With effective rents down nearly 50% since the end of 2008, many office tenants that were previously repelled by sticker shock in Midtown North now find the nationâ€™s premier office district within their reach as 2009 draws to a close. Conversely, cheaper rents in Midtown North may be luring demand away from downtown, which had been performing well on a relative basis but saw a jump in availability as tenants now have affordable options throughout the city.
According to Manhattan-based commercial real estate services firm FirstService Williams, Manhattanâ€™s overall average asking rents declined just slightly quarter-over-quarter, to $51.41 per sq. ft., but in Midtown North, the average asking rent dropped to $59.31 per sq. ft., down from $88.81 per sq. ft. a year ago.
Meanwhile, the overall Manhattan availability rate increased only slightly quarter-over-quarter from 13.4% to 13.8%, with downtown posting the largest increase, at 13% up from 11.6%. But overall Manhattan leasing activity increased to 6.3 million sq. ft., up from 5.5 million sq. ft. in the third quarter.
The market also demonstrated other signs of strength. The size of concession packages in Midtown North is stabilizing, and available rentable space has held steady quarter-over-quarter, indicating that the submarketâ€™s average effective rent levels may be approaching a trough. And while it is still too early to announce that rent declines in Midtown South have ended, asking rents held steady during the fourth quarter. The districtâ€™s 11.7% availability rate is the lowest in the city.
â€śLike the rest of the nation, New York City has been through an incredibly difficult year, but weâ€™re now seeing signs that the worst may be over,â€ť said Mark Jaccom, CEO of FirstService Williams. â€śTenants once priced out of Midtown now see it as a viable destination. Demand drives, and weâ€™re seeing that play out.â€ť
â€śWith the financial sector still a major driving force in the Downtown market, recovery in lower Manhattan may be slower than expected,â€ť added Robert L. Freedman, Executive Chairman of FirstService Williams.
Normally, there would be little question that demand from the financial sector would start to grow in 2010, a full year after the economic recovery began. In this cycle, however, Washington has set out to change the regulatory structure and rules related to business operations in the financial sector. Coupled with the potential increase in capital gains taxes,in business operations and new hiring may be delayed, according to FirstService Williams.
However, Freedman noted one encouraging sign: The total amount of available space added to the overall Manhattan market has slowed each month as gains in the overall availability rate have decelerated.
Additional highlights from FirstService Williamsâ€™ fourth-quarter analysis:
- Though Manhattanâ€™s overall availability inched up in the fourth quarter to 13.8% from 13.4%, much of this increase occurred in the first half of the quarter.
- The increase in Midtown South availability is not as steep as it first appears. The rate climbed to 11.7%, up from 11.1% in the third quarter, but that rate was down from 11.4% in the second quarter. Over a six-month period, the availability rate increased by only 0.3 percentage points.
- Nearly two-thirds of the increase in Midtown South available space over the past quarter was attributable to two buildings â€” 450 West 33rd Street and 350 Fifth Avenue (The Empire State Building).
- Leasing absorption along Park Avenue, Fifth Avenue and the Avenue of the Americas totaled in excess of 1 million sq. ft. in the fourth quarter, with approximately 200,000 sq. ft. of space leased at 399 Park Avenue alone.
- Conversely, 45 Rockefeller Plaza, and 1221 and 1220 Avenue of the Americas each added at least 150,000 sq. ft. of space to the market in the fourth quarter.