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Q1 2018 Results are in: Manhattan asking rents, job growth, and investment sales rise while leasing

At 7.57 MSF, Manhattan’s first quarter leasing activity dropped 22.5% since 4Q 2017, according to Colliers International. Year-over-year, leasing was down by 17.8%. Last quarter, Manhattan leasing activity fell 18.9% below the five-year first quarter average, but 3.3% above the same ten-year average.

Deals by FIRE (financial services, insurance and real estate) tenants led leasing by industry sector last quarter with a 45% share. Leasing by TAMI (technology, advertising, media and information services) companies trailed considerably at 23%.

Job creation remains strong. From February 2017 to February 2018, New York City added 74,700 new private sector jobs, a 2.0% yearly increase. New York City bettered annual employment growth nationally (at 1.8%) and for New York State (at 1.2%).(1) Unemployment in New York City (as of February 2018) was down 0.6pp (percentage points) since the same point last year to 4.4%. The unemployment rate did increase slightly since 4Q 2017, by 0.4pp (2).

At an average $73.05/ SF, Manhattan asking rents were up a modest 0.4% ($0.31/ SF) over 4Q 2017. The asking rent averages for eight of Manhattan’s 18 submarkets were higher, quarter-over-quarter. Average Manhattan pricing fell 1.2% ($0.87/ SF) since 1Q 2017.

Manhattan’s availability rate increased last quarter by 0.3pp to 10.3%. Availability was stable since 1Q 2017, higher by a nominal 0.1pp. Quarterly sublet availability was steady at 1.9%, a negligible 0.1pp change over the prior quarter. Absorption was negative at 2.42 MSF, Manhattan’s highest quarterly negative absorption in nine years.

The investment sales market regained some momentum following a historically low 2017. Google’s $2.4 billion purchase of the Chelsea Market anchored the first quarter’s $8.37 billion in overall investment sales.

With $5.2 billion in total office sales, the average price per square foot of a Manhattan office building was $1,198.00/ SF in 1Q 2018. When excluding the Chelsea Market sale, the average sale price was $890.00/ SF, still at near record levels. There is an additional $5 billion of deals under contract ($1.6 billion of office), so an active first half of 2018 is anticipated.

Cap rates continued to experience a ~25 bps shift upwards, as borrowing costs are at their highest levels in over five years. With stagnant rent growth, and increasing interior construction costs, cap rates are expected to remain higher than the previous 24 months.

“Job growth in Manhattan remains strong, besting comparable national and New York State employment numbers. FIRE tenants were active in the first quarter with continued interest Downtown from the TAMI sector. Pricing was relatively stable in the first quarter overall with certain markets posting record asking rents but others presenting value opportunities for tenants with the flexibility to leverage cost over location,” noted David Amsterdam, President – Investments, Leasing and Eastern Region, Colliers International.


1Q2017 4Q2017 1Q2018

Availability Rate: 10.2% 10.0% 10.3%

Average Asking Rent: ($/SF/YR) $73.92 $72.74 $73.05

Leasing Activity: 9,216,581 9,774,571 7,571,460

Net Absorption: (127,859) (776,249) (2,423,810)

MIDTOWN Midtown leasing was down 21.7% last quarter to 3.84 MSF. Leasing activity in Midtown was off by 20.3% compared to the first quarter, 2017. FIRE tenants dominated quarterly Midtown leasing with a 57% share, including JPMorgan Chase’s 418,000 SF new lease at 390 Madison Avenue, Manhattan’s largest lease deal this year. Leasing by professional service firms followed at 19%. Midtown asking rents decreased by 2.1% ($1.66/ SF) since 4Q 2017 to an average $79.20/ SF. Midtown’s quarterly asking rent average had been above $80.00/SF since 4Q 2015. Pricing was lower in Class A and Class C inventory and in four of Midtown’s five submarkets, quarter-over-quarter. The asking rent average was 3.9% below 1Q 2017. Large blocks of space (100,000+ SF) with below-average asking rents were added to Midtown’s available inventory at 875 Third Avenue, 805 Third Avenue (sublet) and 1440 Broadway. At 75 Rockefeller Plaza and 575 Fifth Avenue, pricing for 100,000+ SF blocks of space was dropped. Additionally, JPMorgan Chase’s lease at 390 Madison removed 418,000 SF of above average priced space from the market. Midtown’s quarterly availability rate increased by 0.2pp to 10.6% but was unchanged since 1Q 2017. Absorption for the quarter was negative 0.30 MSF, Midtown’s second consecutive quarter of negative absorption.


1Q2017 4Q2017 1Q2018

Availability Rate: 10.6% 10.4% 10.6%

Average Asking Rent ($/SF/YR): $82.45 $80.86 $79.20

Leasing Activity: 4,820,406 4,909,449 3,842,983

Net Absorption: 225,108 (325,124) (303,211)


First quarter leasing in Midtown South jumped 50.3%, year-over-year, to 2.67 MSF with four separate leases greater than 100,000 SF. Comparatively, there were none in the first quarter last year. Quarterly leasing in Midtown South was down 23.4%. The FIRE sector accounted for 30% of Midtown South’s first quarter leasing with two large deals by WeWork at 18 West 18th Street (167,000 SF) and 154 West 14th Street (122,000 SF).

Asking rents in Midtown South spiked 7.0% ($4.69/ SF) last quarter to a record average $71.55/ SF. The asking rent average was higher by 3.8% over 1Q 2017. Average asking rents in all three Midtown South building classes were priced above the asking rent averages for comparable building classes in Midtown for the first time. Several large (100,000+ SF) blocks of space with above-average asking rents were added to Midtown South’s available supply. Additionally, the below-average priced sublet block from Tommy Hilfiger at 601 West 26th Street (219,000 SF) was withdrawn and removed from the market. The asking rent averages increased during the quarter in three of Midtown South’s eight submarkets. Eleven blocks of space over 100,000 SF were newly listed last quarter. With this large, added supply, quarterly absorption was negative 1.43 MSF, Midtown South’s highest quarterly negative absorption since 2009. Midtown South’s availability rate increased by 0.4pp to 8.6%, quarter-over-quarter, but was lower by 0.2pp, year-over-year.


1Q2017 4Q2017 1Q2018

Availability Rate: 8.8% 8.2% 8.6%

Average Asking Rent ($/SF/YR): $68.93 $66.86 $71.55

Leasing Activity: 1,779,289 3,490,374 2,673,510

Net Absorption: (877,179) 279,486 (1,434,580)


Leasing activity Downtown fell to 1.05 MSF in 1Q 2018, 23.3% less than the prior quarter. Since 1Q 2017, leasing was down by almost 60.0%. Only one lease over 250,000 SF closed last quarter, compared to three such deals in 1Q 2017. Nearly half of all Downtown deals in the first quarter of this year (45%) were by TAMI sector tenants. FIRE companies followed closely with a 41% share of Downtown’s first quarter leasing. Lower Manhattan’s average asking rent gained 0.6% ($0.39/ SF) since 4Q 2017 to $63.39/ SF. Above-average priced large (100,000+ SF) blocks of space were listed at 28 Liberty Street, 195 Broadway and 89 South Street (Pier 17). Downtown’s average asking rent was up 0.9%, year-over-year. Quarterly asking rent averages increased in Downtown’s Class A and Class C inventory and in all Downtown submarkets, except for the small office market in Tribeca where the market sensitive average decreased by 4.1% ($2.81/ SF) to $65.31/ SF. Downtown’s Class B asking rent average was stable, decreasing by less than one-tenth of a percent ($0.04/ SF) to $54.34/ SF. Both quarterly and annually, availability Downtown rose by 0.7pp to 12.4%, Downtown’s highest availability rate since 4Q 2015. Absorption for 1Q 2018 was negative 0.69 MSF, the second successive quarter of negative absorption Downtown.


1Q2017 4Q2017 1Q2018

Availability Rate: 11.7% 11.7% 12.4%

Average Asking Rent ($/SF/YR): $62.82 $63.00 $63.39

Leasing Activity: 2,616,886 1,374,748 1,054,967

Net Absorption: 524,212 (730,611) (686,019)


Foreign capital accounted for 29% of all Manhattan sales activity last quarter, down from the 40% - 45% quarterly trend of the last three years. There continues to be no shortage of investment capital, foreign or domestic, interested in Manhattan real estate. The scarcity of Midtown Class A assets continues with only four closed transactions during 1Q 2018 and few buildings expected to become available in the near-term.

Corporate users are invested heavily in the market reflected by two notable recent purchases at 424 Fifth Avenue by WeWork (under contract) and Chelsea Market by Google. Institutional capital dominates the balance of Manhattan investment sales. AEW, Rockpoint, Allianz, Oxford and Brookfield are all active participants in the market.

Notable transactions during the first quarter were the sales of Chelsea Market, 1515 Broadway, 600 Lexington and 333 West 34th Street. Looking ahead, there are three pending office deals totaling approximately $1.6 billion, including 424 Fifth Avenue, 5 Bryant Park and the leasehold interest in 300 Lafayette Street.

“Despite a rising interest rate environment, the first quarter saw a strong start to the year with nearly $8.4 billion of sales activity, highlighted by Google’s record-breaking $2.4 billion purchase of the Chelsea Market. Demand for office assets has not waned, even as the 10-year treasury gradually increases. Cap rates are beginning to reflect the impact of higher interest rates with an upward movement of 25 to 50 basis points, year-over-year. Several macro-economic uncertainties remain in the market, the most notable being the potential impact of tariffs, volatility in the equities market and the pace at which the Fed continues to raise rates,” noted Scott Latham, Vice Chairman, Colliers Capital Markets.

MANHATTAN INVESTMENT SALES (Office Sales over $10 million)

1Q2014 1Q2015 1Q2016 1Q2017 1Q2018

Total Sales: $2.5 bil $6.1 bil $6.7 bil $2.58 bil $5.2 bil

Average Sale Price: $191 mil $277 mil $335 mil $184 mil $473 mil

Average Price/SF: $698 $1,086 $869 $837 $890

Additional Manhattan market highlights from 1Q 2018 include:

  • Plaza District led leasing for Manhattan’s 18 submarkets at 1.64 MSF, including Simon & Schuster’s 300,000 SF renewal at 1230 Avenue of the Americas, WeWork’s 112,000 SF lease at 750 Lexington Avenue and Estée Lauder’s 78,000 SF expansion at 767 Fifth Avenue.

  • Since 4Q 2010, sublet space has represented less than one-fifth of Manhattan’s overall availability rate.

  • Five submarkets ended 1Q 2018 with record-high post-Great Recession asking rents: Chelsea ($77.81/ SF), Gramercy Park ($78.84/ SF), Penn Plaza/Garment District ($59.25/ SF), Insurance District ($57.78/ SF) and World Trade Center ($69.89/ SF).

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