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US Manhattan’s Midtown South district top the city’s commercial property market

Sean Wang - Tuesday, July 24, 2012

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Midtown South is the only major Manhattan submarket to see average commercial property asking rents continue to rise from last quarter, according Cushman & Wakefield’s mid year data for the sector.

The vacancy rates across the three submarkets have remained steady this year. The overall Manhattan vacancy rate at the end of June was 9% with 5.4 million square feet of new leasing activity.

In comparison, at the mid year point of 2011, the vacancy rate was 9.4% and a total of 10.1 million square feet had been leased, which marked the strongest leasing quarter in a decade. Despite the year on year decline in quarterly leasing, the 2012 mid year leasing activity is not far off from the six million square foot 10 year quarterly average.

A total of 11.1 million square feet of new leasing activity closed in the first half of 2012. Renewal activity totalled 6.8 million square feet, which is 1.3 million square feet less than all of the renewal activity recorded in 2011.

The average asking rent for overall Manhattan office space totalled $58.86 per square foot at the end of June, which is an increase of 6% year on year. The class-A asking rent is $66.91 per square foot, which is 5.2% higher than a year ago.

The Midtown South market, which has a vacancy rate of 6.1%, continues to be the tightest market of all the Central Business Districts in the nation and is the only submarket this quarter to see average asking rents rise from last quarter.

‘The submarket, also known as Silicon Alley for its desirability among media and technology companies, has an average asking rent of $49.43 per square foot, an increase of nearly 11% year on year. The class-A asking rent this quarter totalled $66.19 per square foot, an increase of 26% year on year,’ said Andrew Peretz, a Cushman & Wakefield executive vice president.

According to Ken McCarthy, Cushman & Wakefield’s senior economist and senior managing director, Midtown South has replaced Midtown as the most desirable location for companies to lease space following a downturn.

‘Historically, Midtown was the location that companies flocked to for affordable rent following a recession, but that's not the case this time. Instead, we've seen companies look for space in the Midtown South submarket and it's so tight there that tenants are looking at neighbouring Downtown and lower Midtown, such as the Garment District,’ he explained.

While space in the Midtown South market continues to be highly sought after, large companies in Manhattan have shown an increasing interest in owning their own real estate.

‘Today, large corporate users of real estate are looking at ownership in addition to leasing opportunities in Manhattan because real estate capital costs exceed corporate capital costs by a wide margin,’ said Michael Rotchford, Cushman & Wakefield’s executive vice president and head of corporate finance and investment banking.

‘For well capitalised corporations, now may be the best time since 2003 to purchase real estate,’ he added.

With the tightening of the Midtown South Market, tenants are looking for space in the Downtown market.

According to Frank Cento, Cushman & Wakefield executive director, Downtown continues to show improvement and strong market fundamentals, despite large blocks of space looming on the horizon.

The vacancy rate in the Downtown market has continued to drop since the third quarter of 2011, when it was 9.9%. At the mid year point of 2012, the Downtown market has a vacancy rate of 8.9%. Asking rents have decreased slightly to $40.06 per square foot from $40.18 per square foot last quarter. The class-A asking rent totalled $45.29 per square foot, up 2.3% year on year.

Retail in the Downtown market and across Manhattan has seen a number of notable transactions in the first six months of 2012. More and more, eyes will continue to be on Downtown as the World Trade Centre is completed and the development of the Fulton Street Transit Centre and World Trade Transportation Hub make it easier for tourists and commuters to get around.

The Midtown market closed the quarter with a 9.8% vacancy rate, down from 9.9% from the first quarter. The average asking rent closed at $66.44 per square foot, up 5% year on year. The class-A asking rent is $71.67 per square foot, up 4.7 percent year on year.

‘Despite flat vacancy and a slowdown in new leasing activity, asking rents continue to rise at a moderate pace,’ said Bill Hartman, a Cushman & Wakefield executive vice president.

Comprised of three of the four largest Central Business Districts in the United States, Manhattan continues to be the premier destination for office users, retailers and investors.

‘Investment volume for 2012 in New York City is projected to increase ten fold from the low mark in 2009. In fact, New York City investment volume for all property types approximates between 10 to 12% of all activity in the United States each year,’ said Glenn Rufrano, Cushman & Wakefield president and chief executive officer.