Manhattan Office, Apartment Sectors Diverge

Michael Tucker

April 11, 2018

Manhattan's office and apartment sectors diverged in the first quarter, reports said.

New York City added nearly 85,000 jobs last year and total employment has grown by an additional 21,400 jobs since year-end 2017 alone, pushing Manhattan's already low office vacancy rate down still further, reported Cushman & Wakefield, New York. "Manhattan's overall vacancy rate closed the first quarter of 2018 at 8.8 percent, marking the lowest quarterly vacancy recorded in nearly two years," th company's First-Quarter MarketBeat report said.

Financial services employment contracted slightly in January and February, but healthy growth in professional services, education and the health sector--important drivers for office space demand in recent years--boosted Manhattan's office market, Cushman said. The borough's absorption registered 1.2 million square feet, mostly due to above-average leasing in Midtown, which accounted for more than 78 percent of total absorption.

The office sector gained momentum during the first quarter with 16 new co-working leases totaling 863,000 square feet, surpassing "TAMI" (technology, advertising, media and information services) leasing for the first time on record, Cushman said.

Looking at individual submarkets, Cushman said Downtown Manhattan vacancy could increase into the double digits this quarter as nearly 1.8 million square feet of available space will be added when the 69-story skyscraper Three World Trade Center delivers. But above-average Midtown leasing should offset slowing Downtown activity. "Expect Class A asking rents to increase over the next two years as 13.4 million square feet of development with above-average asking rents gets added to the inventory," the report said.

But Manhattan's residential real estate market slowed market-wide in the first quarter, brokerage Engel & Volkers Mercedes/Berk said. Apartment sales fell nearly 25 percent compared to the same period last year to 2,180--the lowest quarterly sales total in more than six years.

Engel & Volkers Mercedes/Berk reported listing inventory rose 4.4 percent year-over-year to 6,125 active listings, while listing discount grew to 5.5 percent from 4.2 percent in the previous quarter, "indicating that sellers are becoming much more willing to meet buyers on price."

Manhattan's luxury apartment market--the top 10 percent of all sales--experienced a 15.1 percent annual decrease in average price per square foot to $2,653, the report said. Total closed sales fell 24 percent year-over-year. "Pricing indicators [in the luxury market] are trending down; recent figures were propped up by contracts in new developments signed years ago and they have now closed as buildings have been completed," the report said.

New York new development experienced an annual decline in average price per square foot, down 19.3 percent year-over-year to $2,409 per square foot. New development closings as a percentage of sales have fallen by half as the legacy contracts pipeline empties. "The available product in the new development segment continues to trend smaller in both size and price, transitioning from the larger units and higher prices offered in the development cycle from 2011 to 2014," the report said.

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