By Lori Albert, Director, Tri-State Research
New office leasing activity in Manhattan soared to the highest level in 18 quarters with 9.6 million square feet (msf) transacted in the third quarter. On track to reach the second-highest new leasing year on record, this marked the second consecutive quarter that leasing surpassed 9.0 msf, and the strongest two-quarter total on record. Year-to-date Manhattan office leasing reached an historic high of 25.7 msf, triggered by 33 new and expansion leases greater than 100,000 square feet (sf).
Despite the strong leasing pace, Manhattan vacancy increased 30 basis points (bps) in the third quarter as total available space reached its highest quarterly level in four years. Available sublease space climbed 20.1% in the third quarter to 6.8 msf, while direct available space remained steady at 31.2 msf. Overall asking rents in Manhattan remained stable at $72.65 per square foot (psf), but reached all-time highs in Midtown South and Downtown. For the first time since 2001, Midtown asking rents were no longer ranked the highest in the nation as lower-priced sublease space entered the market, pushing overall rents down.
New leasing activity in Midtown reached a record 7.1 msf in the third quarter, fueled by five leases greater than 100,000 sf. The Midtown overall vacancy rate remained unchanged during the quarter at 9.2%, though it declined 40 bps from one year ago. Despite an 18.1% increase in sublease space, direct available space fell to the lowest quarterly level since 2015. Lower-priced sublease space that entered the market pushed Midtown asking rents down by $1.32 psf to $76.12, as six of the nine submarkets recorded declines. Madison/Fifth Avenue asking rents fell by $6.78 psf to $91.90 due to 264,091 sf of lower-priced sublease space entering the market.
Third quarter new leasing activity in Midtown South totaled 1.8 msf, marking a 44.1% increase compared to the prior three-year quarterly average of 1.3 msf. Year-to-date new leasing registered 5.1 msf, already surpassing the 2017 total by 0.8%. The Madison/Union Square submarket drove Midtown South leasing, accounting for 53.8% of its total year-to-date activity. As leasing activity outpaced new space additions, overall absorption remained positive for the third consecutive quarter, bringing year-to-date absorption to nearly 1.3 msf. Despite strong third quarter leasing, the completion of 512 West 22nd Street brought 145,600 sf of available space to the market, which drove Midtown South vacancy up by 70 bps to 7.4%.
Downtown’s third quarter new leasing reached 672,053 sf, marking the lowest quarterly level of activity since 2016. A lack of large third quarter leases contributed to the decline in activity, with the largest lease totaling 76,278 sf. Year-to-date leasing dropped 28.6% from this time last year with 3.4 msf transacted. While the slower pace of leasing and an increase in available space brought third quarter absorption into the negative, year-to-date absorption remained positive at 255,532 sf. Downtown asking rents increased to a record $63.72 psf, partially due to higher-priced space that entered the market at 28 Liberty Street and 32 Old Slip. Downtown overall vacancy increased 70 bps in the third quarter to 12.0%, its highest level since the beginning of 2014, also due in part to the addition of 333,474 sf at 28 Liberty Street and 95,921 sf at 32 Old Slip.
Lori Albert is a Director, Tri-State Research at Cushman & Wakefield in which she manages day-to-day research operations and is responsible for quality control and analysis of data. She supports the firm’s service lines, writes monthly and quarterly MarketBeat Reports, and prepares marketshare analyses.