Manhattan office market recovering well as property vacancy rates decline and sales increase

The vacancy rate fell to 10.8% in June from 11.6% in March, marking the first quarter decline in vacancies since the second quarter of 2007, according to figures from consultants Cushman & Wakefield.
   
Property sales are also recovering. Deals closed and under contract for transactions of $10 million and higher totalled $5.8 billion, up 132% from the $2.5 billion closed and under contract by the middle of 2009.  Activity was up 75% from the $3.3 billion closed and under contract at the end of the first quarter of 2010.
 
Approximately $5 billion in sales closed during the first half of 2010. If sales volume for the second half of the year reflect that of the first half, as expected, overall property sales for 2010 will be off 64% from the 2004 to 2008 five year average of $28 billion.
 
However, with $3.5 billion in transactions completed in 2009, 2010 investment sales volume has already surpassed last year’s total.
 
The decline in vacancy coincides with the strongest quarter for new leasing activity in Manhattan since the third quarter of 2006. For the second quarter, 6.9 million square feet of new office leases were signed, bringing the midyear total to 12.6 million square feet, up 98% year on year, the organisation said.
 
The Manhattan class-A vacancy rate declined to 11.5% in June from 12.6% at the end of the first quarter. For the same time period, the overall Midtown Manhattan vacancy rate, including all property classes, fell to 11.5% from 12.6%; the Midtown South vacancy rate was down to 9.3% from 9.9% and the Downtown vacancy rate fell to 9.9% from 10%.
 
‘The amount of new leasing activity during the second quarter shows how far the market has come from this time last year. With this kind of impact on vacancy, there is little doubt that the market is improving,’ said Joseph Harbert, Cushman & Wakefield’s chief operating officer for the New York Metro Region.
 
Midtown’s class-A vacancy, which rose to a high of 13.9% at the end of the first quarter of 2010, fell to 12.5% at the end of June, the report also shows. ‘In Midtown the market has clearly trended from stabilization to recovery over the past six months," said Ken McCarthy, Cushman & Wakefield’s managing director of research for the New York Metro Region.
 
McCarthy suggested that the market would experience some swings in vacancies in the near term, as Cushman & Wakefield expects certain space to be added to the market before the end of the year. But he asserted that key economic indicators, such as employment, are indicative of a longer term trend of slowly improving office market fundamentals.
 
‘There are still some uncertainties in the broader global economy that have the ability to derail a recovery, but in New York City five straight months of employment growth suggest business confidence has started to return and the office market stands to benefit,’ he explained.
 
In addition to the overall vacancy rate decline in June, the sublease vacancy rate, which represents space available directly from tenants with excess inventory, fell to 2.4% from 2.6% at the end of the first quarter. Sublease space now accounts for only 21.9% of all available office space in Manhattan, down from a peak of 28.2% in April 2009.
 
At the end of June, overall average asking rents in Manhattan registered $54.31, down from $55.38 at the end of the first quarter. Financial services accounted for 22.6% of all leasing year to date, followed by legal services at 12.1% and government, education and social services at 11.9%.