Class A office spaces larger than 100,000 square feet in Midtown South tumbled to their lowest availability rate in more than seven years, while asking rents around Manhattan continued their steady climb, according to the 2014 First Quarter Office Market Report from commercial brokerage Cassidy Turley.
Manhattan Class A office rents hit an average ask of $73.77 in the first quarter, a 5.6 percent year-over-year uptick from $69.81 in the first quarter of 2013. Vacancy rates dropped to 10.4 percent from 11.8 percent, while the borough reported an absorption rate of 1.5 million square feet. “Vacancy is declining, rental rates are increasing, but they are not skyrocketing,” said Peter Hennessy, president of New York Tri-State region for Cassidy Turley. That’s important, Hennessy noted, because if you look at the underlying components driving the New York City economy, it’s not the big companies; it’s small mom-and-pop shops. “If you have a highly escalating marketplace, that pushes them out,” he said.
Vacancy rates in hot-ticket Midtown South, meanwhile, plummeted 130 basis points since the end of 2013, to 7.5 percent. In the Madison Square/Park Avenue South submarket alone, availability tumbled 160 basis points in the first quarter to 9 percent, and demand for spaces larger than 100,000 square feet remained high. Indeed, that area currently has only seven blocks available – the lowest availability in more than seven years, according to the report. Class A asking rents were up 7.7 percent from $67.27 in the first quarter last year to $72.50 in the first three months of 2014.
“There’s a building on Park Ave South where ownership has indicated they’re raising rental rates for space that isn’t even on the market yet,” Hennessy said. “So that’s something that’s coming down the pathway—the question is really the depth of the market there in Midtown South, whether there are enough tenants who really want to pay that.”
While demand in Midtown South continued to bump up against a lack of inventory -bolstering asking rents — Downtown saw a third consecutive quarter of hefty dips in available supply. After hitting a high of 14.6 percent in the second quarter of 2013, the availability rate has fallen 250 basis points – 80 in the first quarter of 2014 alone – to 12.1 percent. The market also kicked off the year with a reported absorption of 769,000 square feet, bolstered by Nature Publishing’s 176,000-square-foot lease at 1 New York Plaza and Teach for America’s 173,000-square-foot take at 25 Broadway. Class A asking rents, meanwhile, rose 5.2 percent, or $0.06-per-square-foot, from $52.60 to $55.36.
Midtown picked up speed in the last two months of the year after a slow start in January. Despite being the only market to report a negative absorption of (210,000) square feet for the first quarter, the rate was an improvement over the 2013 start of (909,000). Availability ticked down as well, tumbling from 12.2 percent in the first quarter of 2013 to 10.8 percent in the first three months this year, and Class A rental rates leapt 6.7 percent from $76.97 in the first quarter last year to $82.11 at the start of 2014.