2019 Was A Very Good Year for Manhattan Office Market; Outlook 2020 Positive As Fundamentals Remain Strong
01 Jan 2020
CBRE today released its 2019 H2 Manhattan Office Market Review recapping a very good year for leasing activity and rent growth. For the third consecutive year, large deals defined the market, with 33 leases of more than 100,000 sq. ft., powered by the tech sector, which vaulted over financial services as the largest driver of market demand.
“With both the U.S. and New York economies showing solid year-over-year growth and adding jobs for the tenth consecutive year, the Manhattan office market experienced continued strong demand led by the tech sector,” said Nicole LaRusso, Director of Research and Analysis for CBRE Tri-State. “Despite the unprecedented longevity of the economic cycle, the outlook for the year ahead is continued economic expansion, albeit at a slower pace, with ongoing healthy demand for Manhattan office space.”
Continued strength of the economy propelled leasing activity to its second highest annual total since 2001. Annual leasing activity, which excludes renewals, totaled more than 31.6 million sq. ft. in 2019, only 2% behind 2018’s 32.4 million sq. ft. Despite 2.1 million sq. ft. of negative absorption, the overall availability rate was a healthy 11.2% at year-end, continuing the relative stability and equilibrium of the past four years.
Perhaps the most dramatic trend of 2019 was the rise in average asking rent. After growing a mere 2% from 2015 to 2018, asking rents in Manhattan jumped by 10% in 2019 to a new high of $80.43 per sq. ft., driven by an influx of premium-priced space and upward repricing by emboldened landlords.
Much of Manhattan’s rent growth in 2019 is attributable to the addition of several large blocks—100,000 sq. ft. or more—of premium space. Eight large blocks priced at or above $100 per sq. ft. came to market in 2019, adding a total of 2.2 million sq. ft. at the top end of the price range.
“The predominance of very large deals is a defining feature of the Manhattan market late in the cycle and reflects the convergence of the sustained U.S. economic expansion, the diversification of the NYC economy, the growing importance of the modernized workplace and the delivery of millions of square feet of new and revitalized office inventory,” said LaRusso.
As the tech sector was heating up in 2019, accounting for 25% of all leasing activity, the flex space sector was cooling down. Coming off a year of tremendous expansion in 2018, flex space operators slowed their absorption of new spaces in Manhattan in 2019. Still, the underlying end-user demand for flex space appears solid, and flex operators ended the year without any significant shrinkage of their existing space footprint in Manhattan.
The flight-to-quality phenomenon continued in 2019, as newer buildings (built since 2000) and those that underwent substantial renovation captured more than 50% of leases of 50,000 sq. ft. or more. Tenants’ steady migration to the highest quality space in the market helped fuel a near record number of deals priced at $100 per sq. ft. or more. This inspired more owners and investors to upgrade assets to better suit tenants’ increasing preference for bright, airy buildings with greater efficiency and more amenities.
“In recent years companies from across the business spectrum have chosen to expand in NYC. The city offers the high-quality labor pool, strong infrastructure, including public transportation and state-of-the-art office space that support worker attraction, retention and productivity,” said LaRusso.
The result was an unprecedented volume of large transactions that drove robust leasing activity across Manhattan. The aggregate total leasing activity for the past three years (2017 to 2019) reached nearly 92.5 million sq. ft. —more than any three-year period since CBRE began tracking the market in 1994.
Midtown South and Downtown had blockbuster years. Midtown South’s 7 million sq. ft. of leasing was its best single-year total ever. Meanwhile, Downtown’s 7.3 million sq. ft. was its best year since 2000. The robust leasing activity of these markets made up for the modest underperformance of the Midtown market, which at 17.3 million sq. ft. of leasing was 2% behind the five-year annual average and 14% down from 2018’s phenomenal 20.2 million sq. ft. Midtown saw a flurry of activity late in the year, giving it momentum heading into 2020.
Please find the full H2 Manhattan Office Review here.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2021 revenue). The company has more than 105,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.