Manhattan’s Office Market Thrives as Top-Tier Tenants Flock to Midtown
Driven by activity in the office sector, commercial real estate in Manhattan is having one of its best years on record. The overwhelming demand for Manhattan office space has led to a surge in office-using employment and an accelerated pace of construction.
In addition, the success and appeal of the new Hudson Yards project has breathed new life into the borough’s office market, with developers unable to keep up with the demand.
The continued expansion in the technology and coworking sectors is reshaping the market. Companies are willing to pay a premium to snag office space that attracts top-tier, tech-savvy talent. This trend has caused office asking rents to rise to record levels.
By The Numbers
CBRE data shows that average asking rents for Midtown Manhattan office space reached $88 per square foot in the second quarter of 2019, 9.1 percent higher than the previous year. Class A office space commands even more, surpassing the $100 per square foot mark in desirable submarkets like Hudson Yards, Times Square or the Plaza District.
The Midtown vacancy rate decreased 10 basis points to 12.2 percent, the lowest in 18 years, according to CBRE, while the past quarter saw 14.7 million square feet of new office space come on line, the largest quarterly total since the third quarter of 2009. The New York metropolitan area is currently the top metro for office-using employment growth, having added close to 29,000 new jobs through mid-year.
In terms of leasing activity, the Manhattan office market has had a busy couple of quarters, with roughly 30 leases of 100,000 square feet or more signed through June 2019. Financial services leases made up 34 percent of the year-to-date leasing activity, while the coworking sector accounted for 10 percent of the leasing total, according to CBRE.
The second quarter of the year saw various high-profile leases executed, and nearly half of these were renewals. This is a signal that interest in the market is healthy and tenants are willing to bet on its long-term success.
While many companies have chosen to upgrade and make the move to the new office towers at Hudson Yards, others are staying put in desirable submarkets like Times Square, Penn Station, Grand Central, the Plaza District and the Financial District.
The biggest office lease of the second quarter was McCann Worldgroup’s 450,000-square-foot renewal at 622 Third Avenue. The advertising agency has been operating out of the 39-story Grand Central Plaza tower since 2000 and will continue to do so for another 15 years.
Other notable office renewals signed during the second quarter include Colgate-Palmolive at 300 Park Avenue in Flatiron and CBS at 28 East 28th Street in Midtown South.
The second-largest office lease of the quarter was another renewal, signed by EmblemHealth at 55 Water Street in Lower Manhattan. The insurance provider occupies 440,000 square feet at the 4 million-square-foot tower and has extended its stay for another 15 years.
Some office-using tenants chose to start fresh in the second quarter of 2019, including Justworks, which took over 275,000 square feet at 55 Water Street in the Financial District. The tech giant parted ways with its previous home at the Starrett-Lehigh Building in Chelsea to set up shop at the second-largest office address by floor space in the country.
BMO Capital Markets moved from its offices at 3 Times Square to 4 Times Square at 151 West 42nd Street, taking over the space left vacant by Conde Nast. The investment bank signed a 215,000-square-foot lease just across the street from its previous location, becoming the largest tenant at the Durst Organization-owned office tower.
Other notable leases were signed by WeWork at 620 6th Avenue in the Flatiron District; First Republic Bank at 460 West 34th Street in Hudson Yards; and AllianceBernstein at The Spiral, also in Hudson Yards.
The first two quarters of the year were equally busy in terms of office sales, with major transactions closing across Manhattan. The sale of the iconic Chrysler Building for a mere $150 million in March made many experts wonder if the market was heading for a slump. The following months of the year proved them wrong, and it’s clear that investor interest has not waned — quite the contrary, in fact.
Office-using companies are drawn to the new availabilities in Midtown and Midtown South, such as 30 Hudson Yards, which was delivered in the second quarter. The 101-story tower was also subject to the biggest sale of the quarter, with WarnerMedia closing on a $2.1 billion sale-leaseback deal with Related. Warner occupies a 1.5 million-square-foot office condo at the tower, and will continue to lease it from Related until at least 2034.
Allianz also got in on that deal, partnering with Related to buy a $384 million stake in 30 Hudson Yards, further emphasizing the immense appeal of the this development, which is becoming the new business core of the city.
The Manhattan office market is obviously going through a fruitful year, and even with new deliveries coming on line in the past two quarters, demand continues to surge. Luckily, several major developments are currently in the works, such as One Vanderbilt, The Spiral, 50 Hudson Yards and Two Manhattan West. These new projects are expected to temper the demand for quality office space and the rising asking rents over the following months.
— By Alan Rosinsky, principal broker, Metro Manhattan Office Space. This article first appeared in the August-September issue of Northeast Real Estate Business magazine.