Job Boom Boosts NYC Office Market
by justinp on May 16, 2012
The 352-million-square-foot general purpose, multi-tenant Manhattan office market is arguably the strongest in the U.S., with the second lowest vacancy rate among the top Reis markets behind Washington DC and the second highest rent gain in the first quarter of 2012, behind San Francisco. Recent trends in the market have called into question how dependent the city’s economy is on Wall Street, with employment gains despite a slowdown in the Financial Activities sector. Reis expects demand to slow down in 2012, but net absorption still expected to be solidly positive as the vacancy rate falls to the brink of single digits.
Tighter and Tighter Vacancy
The vacancy rate is 10.4% as of the first quarter of 2012 according to Reis, down 10 basis points from the prior quarter, and 40 from a year earlier. In weak markets extensive sublease space is a sign of even greater weakness, but with New York the fact that 21.0% of available space is sublease space, compared with just 11.0% nationally, just means the market is even tighter for firms seeking a long term location.
Cautiously Optimistic Future
Between the disaster of 9/11 and office to residential conversions, the New York office market is 18.5 million square feet smaller than it was at the end of 1999. The inventory losses have extended to the present, with a decrease of 550,000 square feet in the first quarter of 2012 in the Downtown submarket. No new space was completed in the first quarter, and none is expected in all of 2012. However, Reis predicts New York is on the verge of an office building boom, with more than 18 million square feet expected to complete construction within the Manhattan Central Business District from 2013 to 2016.
Moderate Rent Increase
NYC Rents are rising steadily at a moderate pace. In the first quarter of 2012 the average asking rent rose 1.1% to $57.69 psf, while the average effective rent increased 1.4% to $47.22 psf. The year-over-year increases are 3.8% and 4.8% respectively, and Reis predicts gains of 4.7% asking and 5.2% effective for all of 2012. Given the long construction lead times and low vacancies in New York, it has been left to rents to balance the market by constricting demand or making up for its sudden drops.