REAL ESTATE OUTLOOK

MANHATTAN
OFFICE MARKET
FIRST QUARTER 2018

Leasing cools, influx of large blocks added

Fourteen blocks exceeding 100,000 SF brought to market

Following a very active 2017, the Manhattan office market cooled down during TRE N DLIN E S
the first quarter of 2018, recording 7 million square feet of leasing activity.
Despite the decline, eight new leases were recorded over 100,000 SF, occurring 5-YEA R TR EN D C U R R EN T QUART E R

mostly in Midtown. The FIRE sector continued to remain one of the market’s most AVA I L A B I L I T Y
active, a trend that started to pick up steam in 2017, recording five transactions
over 100,000 SF with J.P. Morgan Chase’s 418,000 SF lease at 390 Madison 11.4%
Avenue being the largest transaction of the quarter. Further, seven new leases Availability rate
over 100,000 SF occurred in either new construction or substantially renovated increased 30 bps
product, a trend that has been driving the market over the past few years.
ABSORPTION

The Manhattan market started to feel the impact of major tenant moves as
available space from tenants who flocked to new construction has started to
-1.7 Million SF
Negative net
trickle into the market. Fourteen blocks exceeding 100,000 SF were added absorption observed
during the quarter, resulting in 1.7 million SF of negative net absorption and a
30-basis point increase in the availability rate. Despite an influx of large blocks R E N TA L R AT E
of availability, the average asking rent remained virtually flat. A wide range
of quality plus a mix of old and new product has suppressed significant rent $74.04 PSF
movement, as have increased concession packages. Asking rents
remained flat
ECONOMY

Unemployment rate drops to an all-time low of 4.2% C A P R AT E S

Private sector jobs increased 2% year-over-year, adding 74,700 jobs. The 4.9%
greatest gains were in education and health services, professional and business Cap rate remains
services, and financial services - all growing sectors. Further, the city’s year-over- stable
year picture remained positive with eight sectors adding jobs.
AV E R A G E O F F I C E S A L E P R I C E

$810 PSF
AVA I L A B I L I T Y

Large blocks added, increase of 30 basis points

Sale value increased
Manhattan’s Q1 2018 availability rate ended at 11.4%, up 30 basis points from
last quarter. The availability rate rose across all markets with the addition of
4.3 million square feet in new blocks of space exceeding 50,000 SF. Major JOB GROW TH

additions occurred in Downtown’s Financial District, Midtown’s Penn Plaza and

East Side, and Midtown South’s Hudson Square and SoHo submarkets. 21,700 Jobs
Jobs gained during
the quarter
MANHATTAN OFFICE MARKET
FIRST QUARTER 2018

AV E R A G E A S K I N G R E N T
MANHATTAN NET ABSORPTION AND AVAILABILITY
Flat quarter-over-quarter
NET ABSORPTION MILLION SF AVAILABILITY The average asking rent across Manhattan
4 16% ended at $74.04 PSF in Q1 2018, virtually
3 15%
unchanged from last quarter and up 3% year-
2 14%
1 13% over-year. Both Midtown and Downtown had
0 12% minimal rent movement, ending the quarter at
1 11%
$79.08 PSF and $64.80 PSF, respectively
-2 10%
-3 9%
-4 8% Midtown South ended Q1 2018 at $76.36
-5 7%
PSF, up 6% from last quarter, driven by new
-6 6%
-7 5% product additions in SoHo and Chelsea/Flatiron
-8
09 10 11 12 13 14 15 16 17 18
4% submarkets. The addition of 66,000 SF at 130
Prince Street, which was priced at $130 PSF,
drove a 14% increase in SoHo’s average asking
rent. Chelsea/Flatiron witnessed a 13% increase
MANHATTAN AVERAGE ASKING RENTAL RATES
quarter-over-quarter driven by the addition of
DOWNTOWN MIDTOWN SOUTH MIDTOWN
145,000 SF of sublet space at 61 Ninth Avenue,
which was priced at $130 PSF. Gramercy
$90
Park witnessed a 6% increase quarter-over-
$80 quarter with the addition of 103,000 SF at 880
Broadway, which was priced between $118 to
$70
$130 PSF, ending the quarter at $72.63 PSF.
$60

$50

$40

$30 09 10 11 12 13 14 15 16 17 18

ABSORPTION

Manhattan posted 1.7 MSF of negative net absorption

A slowdown in leasing activity coupled with an influx of new and returning large blocks of space attributed to 1.7 million SF
of negative absorption. Midtown registered 938,224 SF of negative absorption with large blocks added in the Penn Plaza
and East Side submarkets. Penn Plaza registered 982,457 SF of negative absorption driven by the addition of seven blocks
exceeding 50,000 SF including four that exceeded 100,000 SF. Major additions included 352,000 SF at 1250 Broadway,
350,000 SF at 441 9th Avenue, and 222,000 SF at 498 Seventh Avenue. East Side posted 656,758 SF of negative absorption
driven by the addition of two blocks exceeding 100,000 SF. Midtown South registered 368,059 SF of negative absorption,
mostly occurring in the Hudson Square and SoHo submarkets. Hudson Square recorded 450,172 SF of negative net
absorption driven by the addition of two sublet blocks exceeding 100,000 SF at 345 and 375 Hudson Street. SoHo posted
188,098 SF of negative net absorption driven by the addition of 74,000 SF at 148 Lafayette Street and 66,000 SF at 130
Prince Street.

Downtown registered 383,256 SF of negative absorption driven by the Financial District submarket, where two blocks were
added exceeding 100,000 SF. Major additions included 333,000 SF at 28 Liberty Street and 106,000 SF of sublet space at 1
State Street Plaza. However, some areas did witness positive absorption, including Grand Central in Midtown, which posted
121,820 SF of positive net absorption driven by J.P. Morgan Chase’s 418,000 SF lease at 390 Madison Avenue.

2 R E AL E STATE O UTLO OK MA NHAT TA N OFFICE MA RKET Q1 2 0 18

UNDER CONSTRUC TION/ PROJEC TS DELIVERED
UNEMPLOYMENT RATE
Robust pipeline of new and renovated product
There are currently 17.2 million SF under construction, with much of the space MANHATTAN UNITED STATES

falling on the West Side, in areas such as Hudson Yards and Manhattan West. 12%

Most of these properties have witnessed tremendous pre-leasing activity 10%

8%
and are all close to being fully occupied. In Gramercy Park, 880 Broadway is
6%
currently being redeveloped with new infrastructure including a new lobby,
4%
elevators, and a proposed penthouse and shared roof-deck. Normandy Real 2%
Estate Partners acquired the property in 2017 and is spending $40 million to 0% 09 10 11 12 13 14 15 16 17 18
convert several of the upper retail floors; asking rents are $118 to $130 PSF SOURCE Bureau of Labor Statistics

with an occupancy date of first quarter 2019.

In the Plaza District, J.P. Morgan Chase announced plans to build its new CAP RATES
headquarters at 270 Park Avenue. The plan calls to demolish the current
MANHATTAN UNITED STATES
structure and re-build it to rise 1,200 feet with 2.5 million SF of space
10%
dedicated for their headquarters. It is the first known project to take advantage
of the new Midtown East re-zoning, with plans to buy unused development 8%
rights from nearby buildings.
6%
INVESTMENT SALES

Sale volume picks up steam to start 2018 4% 09 10 11 12 13 14 15 16 17 18

SOURCE Real Capital Analytics
Q1 2018’s total sale volume ended at $5.3 billion, with an average price of
$810 PSF. The sale volume is up 5% from last quarter, and 11% year-over-year.
Major transactions recorded this quarter include the sale of 75 Ninth Avenue,
Chelsea Market, purchased by Google from Jamestown for approximately $2.4
billion. Manhattan’s cap rate remained stable at 4.9%.

OUTLOOK

Demand needed to absorb excess supply

The outlook for the remainder of 2018 remains healthy at the moment, but over the next six to eighteen months,
there are a number of large blocks over 100,000 SF that will officially hit the market, as tenants start to move into new
construction and new product comes online. Demand will need to pick up for the remainder of the year to absorb the
excess supply coming available. n

Notable Lease Transactions

COMPANY ADDRESS SUBMARKET SQUARE FEET LEASE TYPE

J.P. Morgan Chase 390 Madison Avenue Midtown 418,241 New Lease
Bank of America 1100 Avenue of the Americas Midtown 343,026 New Lease
Simon & Schuster 1230 Avenue of the Americas Midtown 283,000 Renewal
Wachtell, Lipton, Rosen & Katz 51 West 52nd Street Midtown 250,000 Renewal
Omnicom Group 195 Broadway Downtown 205,514 New Lease

RE AL E STAT E O U T LO O K M A N H ATTA N OFFI C E M ARK E T Q 1 2 0 1 8 3

MANHATTAN OFFICE MARKET
FIRST QUARTER 2018

Manhattan Office Market Indicators by Submarket

YTD CLASS A CLASS B OVERALL
NET NET VACANCY AVAILABILITY AVERAGE AVERAGE AVERAGE
SUBMARKET INVENTORY ABSORPTION ABSORPTION RATE RATE RENT PSF RENT PSF RENT PSF

City Hall/Tribeca 10,948,478 52,303 52,303 8.8% 10.2% $69.20 $48.85 $67.82
Financial District 37,209,526 (578,624) (578,624) 10.8% 13.6% $58.51 $52.38 $58.19
Insurance District 9,013,360 (12,773) (12,773) 4.8% 12.5% $61.54 $50.61 $59.35
World Trade Center 34,237,085 155,838 155,838 12.1% 16.8% $71.66 $53.96 $70.71
Downtown Total 91,408,449 (383,256) (383,256) 10.4% 14.3% $65.71 $52.19 $64.80
Chelsea/Flatiron 24,446,117 183,552 183,552 7.4% 8.9% $128.72 $56.29 $80.21
Gramercy Park 29,701,699 81,958 81,958 4.9% 7.3% $80.45 $65.55 $72.63
Greenwich Village 4,784,773 4,701 4,701 3.9% 5.7% - $64.19 $64.19
Hudson Square 10,250,915 (450,172) (450,172) 15.1% 16.7% $77.83 $54.58 $76.76
SoHo 4,841,790 (188,098) (188,098) 11.0% 19.3% $88.94 $63.60 $78.69
Midtown South Total 74,025,294 (368,059) (368,059) 7.5% 9.8% $89.57 $60.68 $76.36
Columbus Circle 30,331,884 4,156 4,156 6.5% 7.7% $72.75 $70.55 $72.44
East Side 14,431,421 (656,758) (656,758) 8.3% 11.8% $65.07 $58.20 $64.50
Grand Central 57,107,420 121,820 121,820 10.6% 11.3% $73.52 $57.56 $72.08
Penn Plaza 57,431,046 (982,457) (982,457) 6.5% 10.2% $75.72 $59.38 $70.62
Plaza District 68,213,332 391,875 391,875 11.2% 12.1% $97.80 $67.04 $97.44
Times Square 39,935,782 183,140 183,140 9.4% 11.5% $74.35 $62.42 $73.23
Midtown Total 267,450,885 (938,224) (938,224) 9.1% 10.9% $81.52 $60.91 $79.08
Manhattan Total 432,884,628 (1,689,539) (1,689,539) 9.1% 11.4% $76.47 $59.46 $74.04

CONTACT METHODOLOGY
Danny Mangru The information in this report is the result of a compilation of information on office
Research Manager properties located in Manhattan. This report includes single-tenant and multi-tenant Class
212.537.7690 A and B office properties with at least 100,000 SF in Midtown, 50,000 SF in Midtown
danny.mangru@transwestern.com South, and 75,000 SF in Downtown.

600 Lexington Avenue, 10th Floor T 212.537.7700 F 212.537.0380

New York, NY 10022 www.transwestern.com/newyork

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