As one of the main gateway markets in the USA, the New York office market is closely connected to the performance of the US economy. During 2016, private sector job creation levels and stable employment growth underpinned the strong demand for office space, along with increased consumer confidence and a growing GDP.
Overall, the New York office market delivered a solid performance in 2016, with some indicators not only showing improvement over 2015, but also over the city’s 8-year average. This was especially true of leasing activity levels, net absorption rates, and average asking rates, according to statistics from CBRE.
New York City Office Market by Area
The Manhattan market showed notable levels of leasing activity, and more than 33 million square feet of office space were transacted in the borough during 2016. Availability rates across the borough were also up and currently stand at 10.3 per cent. Average asking rents experienced a 2.4 per cent year-on-year increase and currently average $73.24 / sq ft / year.
Rental values are clearly on their path to recovery and only a few cents below peak pre-recession levels. Rental price increases are evident for all office property types, but particularly for Class C offices, which are now priced at a record average of $57.33 / sq ft. Key occupiers include firms involved in finance, insurance, and real estate, which account for 31 per cent of all office leases in Manhattan, followed by the TAMI sector and to a lesser extent by professional services, the public sector, and consumer goods.
– In downtown Manhattan, overall asking rents currently average $59.01 and $60.25 for Class A offices. The World Trade Center has the highest rental values ($65.39), whereas the lowest are in City Hall (under $50)
– Midtown core has the city’s highest average asking rents ($85.09 / sq ft for Class A offices and just over $82 overall). Notable rent increases are also evident in Class C offices, as average asking rents grew by 24 per cent in the past 12 months. Leasing activity is especially high in the Plaza District and Grand Central, although availability rates are also high in these areas (above 10 per cent)
– Midtown South has the highest average asking rents for Class B space ($66.04 / sq ft) and the lowest overall availability rates (8.4 per cent). Supply is especially tight in Gramercy Park and Greenwich Village
– The Brooklyn office sub-market continues to consolidate itself as one of the key standalone markets in the city, although availability rates remain higher than average at over 23 per cent. Average asking rents across the borough are $38.53 / sq ft
New York City Office Market – 2017 Outlook
Subpar demand is likely to be the most notable trend affecting the New York office market in 2017. The sustained increase in availability rates across the city points at the disparities between supply and demand, which may become more acute in the near future given the current construction trends.
Moreover, and as a result of an increasingly supply-sided market, concessions and incentive packages are expected to become more widespread, in particular when it comes to rent abatement’s. Capital improvements are likely to benefit occupiers further, especially around Midtown and Westside. Additionally, a recently approved re-zoning proposal will result in the expansion of the Midtown market with the gradual addition of over 6 million square feet of office space in Midtown East.
The occupier profile is expected to become more diverse in Brooklyn, as properties in the borough are increasingly attractive to tenants in education, the public sector, and consumer products. This borough also has the most potential for development, since more than 6 million square feet could be added to the borough’s office inventory within the next few years.