As the New York City economy continues to grow, office leasing activity has followed suit. In May, New York City’s employment stood at a record 4,496,400 jobs, up 13,200 from March and up 80,000 from one year ago. Although the TAMI and financial sectors shed jobs in April and May, the education and health sectors saw a spike in employment growth. Concurrently, the leisure and hospitality sectors experienced employment growth – a benefit of New York’s high level of tourism These gains assisted in keeping the city’s unemployment rate low at 4.2 percent.
In the second quarter, new leasing activity in Manhattan hit 9.1 million square feet (msf), marking only the third time quarterly leasing exceeded 9.0 msf. A total of 13 new leases greater than 100,000 square feet (sf) were transacted during the quarter, bringing the year-to-date total to 24—seven of which were commitments to new construction. The largest of these 13 leases was the Cushman & Wakefield brokered 798,278 sf office lease for Pfizer at Tishman Speyer’s The Spiral, a new construction project in Hudson Yards.
The pace of leasing increased across all three major Manhattan markets from the first quarter. Midtown leasing climbed to 5.2 msf, Midtown South leasing reached its second highest quarterly total on record with 1.9 msf transacted, and Downtown leasing more than doubled in the second quarter to 1.9 msf. Second quarter absorption was positive in all three major markets, leading to a year-to-date absorption of nearly 4.2 msf. Overall asking rents increased from $72.13 per square foot (psf) to $72.67 in the second quarter, but remained steady over the past 12 months.
Despite the strong pace of leasing, overall vacancy in Manhattan increased 50 basis points (bps) to 9.2 percent in the second quarter due to the completion of Three World Trade Center, the first major office delivery of 2018 in Manhattan, which brought nearly 1.6 msf of available space to the market.
Below provides insight into second quarter leasing activity in each of the major Manhattan markets:
Above average leasing activity in Midtown brought vacancy down 10 bps to 9.2 percent last quarter, driving vacant sublease space down to its lowest quarterly level since 2016. Financial Services remained the primary driver of this activity, accounting for 27.8 percent of year-to-date new leasing greater than 10,000 sf. As leasing activity outpaced space returning to the market, overall absorption reached positive 2.2 msf and was positive in six of the nine submarkets. Midtown’s overall asking rents increased from $77.06 psf during the quarter to $77.44, due to the triple-digit asking rents that entered the market at 280 Park Avenue and the newly completed 432 Park Avenue.
Due to the addition of 375 Hudson Street, totaling 227,339 sf, Midtown South vacancy inched up 20 bps during the quarter to 6.7 percent, but remains lower than the 7.5 percent registered one year ago. Midtown South’s largest lease so far this year was Discovery’s 362,000-sf transaction at 230 Park Avenue South, in which Cushman & Wakefield represented the landlord, TF Cornerstone. This lease pushed second quarter leasing activity to its second highest quarterly total at 1.9 msf. Year-to-date leasing totaled 3.2 msf in the market, and at 1.2 msf, overall year-to-date absorption reached its highest level since 2014. Overall asking rents increased to a five-quarter high of $71.07 psf, due to the higher-priced space added at 375 Hudson Street and 1250 Broadway along with the removal of lower-priced sublease space.
Despite the strong pace of second quarter leasing, the completion of Three World Trade Center pushed the Downtown vacancy rate up 230 bps to 11.3 percent, marking Downtown’s first double-digit vacancy rate since 2016. Led by J.Crew’s 346,607-sf sublease at 225 Liberty Street and McKinsey & Company’s 184,389-sf lease at Three World Trade Center, Downtown quarterly new leasing soared to 1.9 msf. Downtown asking rents climbed 5.4 percent in the second quarter to a record-high of $62.92 psf, due to higher-priced space added to the market at the newly constructed Three World Trade Center and Pier 17.