sign in sign up
<<
Home , Hudson Square, Midtown South, Times Square

Savills Studley Research

Savills Studley Report office sector Q4 2018

SUMMARY

Market Highlights

AVAILABILITY PUSHES LOWER RECORD LEASING IN 2018 "Steady demand from traditional businesses, tech ’s overall availability rate Leasing volume exceeded 10 msf for the heavyweights, forward lease commitments for decreased, falling from 11.3% to 10.7%, but second quarter during 2018, totaling 11.9 new developments, and unprecedented leasing has decreased by merely 30 basis points msf. Tenants leased just under 40 msf by flexible workspace providers, resulted in record from a year ago. The Class A availability rate during 2018, a 14.3% jump from 2017 and leasing activity in 2018. Even so, availability fell by 60 basis points to 11.9%, with a 50 the strongest annual volume in several barely budged from a year ago, because of new years. basis point decrease in Midtown to 10.6% developments coming on line. Net effective rents and a 180 basis point decline in Downtown INVESTMENT SALES RISE have actually decreased as concessions rise. " to 15.8%. Office property sales through November William Montana, Senior Managing Director RISES 2018 totaled $16.1 billion, a 24% increase Manhattan's ownership landscape has changed Manhattan’s average asking rent rose by compared to the same period during 2017. hand-in-hand with its transformed skyline. 1.8%, from $74.99 to $76.36 in the fourth Heightened institutional ownership, and a more quarter. The Class A average rent increased by 2.5% to $87.90 in the quarter. diversified economy, should support a sounder financial footing for the office sector." Erik Schmall, Vice Chairman Savills Studley Report | New York City

Halcyon Days Office-Using Employment Trends Manhattan’s most seasoned landlords and Millions brokers must surely realize that the current 1.60 6% conditions at work in the office market are far from normal. There is a disconnect 4% 1.40 between labor markets and office space 2% demand. Leasing activity is running way 1.20 ahead of hiring. Employment growth in 0% office-using sectors has been tepid in the 1.00 last 12 months, increasing by only 0.6%. -2% And yet, leasing volume this year will be just 0.80 -4% shy of 40 msf. 0.60 -6% The 73.9 msf leased since 2017 equates to more than 15% of building stock. In 0.40 -8% comparison, during the last two “rally 2010 2012 2011 2013 2009 0.20 2014 2015 2016 2017 2018 -10% periods” – 2000 to 2001 and then 2004 to NYC Off. Emp. NYC (% Annual Change) U.S.(% Annual Change) 2005 – volume totaled 65 msf and 63.8 msf. Source: Bureau of Labor Statistics Office using employment now exceeds 1.4 msf, an increase of more than 15% from peak levels attained in the two prior cycles. Availability Rate Trends (All Classes) Construction activity in these two preceding Overall Availability Rate Trends peaks totaled 13.0 msf and 21.8 msf.

The record leasing is tied to several 15% factors. Three stand out – the tech sector's 13.2% recoding of the market’s industry DNA, the 13.1% proliferation of coworking and the biggest development pipeline since the 1980s. By 11.0% the numbers, there is no mystery to this 10% 10.6% surge over the last two years: TAMI firms 8.9% 8.6% leased 10.5 msf, coworking providers took another 5.0 msf. Finally, a wide cross- section of industries leased 4.3 msf in newly 5% constructed properties. Tech Recode

Midtown Downtown Manhattan’s industry makeup has been 0% recoded in the last several years. TAMI Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18 leasing has been the catalyst for expansion in this cycle. By and large, these are not fly-by-night operations. Most of the leasing Asking Rent Trends (All Classes) ($/sf) is coming from global tech icons that are Overall Rental Rate Trends engaged in a battle for New York City’s talent. Amazon has captured the spotlight $100 of late, but Google has been rapidly $81.77 expanding in for years. $78.27 The firm's local footprint began with a $80 small sales office in 2000 and $80.27 $73.02 has grown to roughly 7,000 employees. In $60 December it announced plans to double $65.23 $63.38 to more than 14,000 people over the next decade. Amazon and Facebook now each $40 have more than 2,000 employees locally. Of note, Amazon’s push to City is reportedly meant to take aim at web $20 advertising and take some market share away from Google.

Midtown Midtown South Downtown $0 Another Day Another WeWork Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18 Real-estate-as-a service also boosted

02 Q4 2018 leasing volume over the last two years. Coworking companies have leased nearly Availability Rate Comparison Rental Rate Comparison ($/sf) City Hall 5.0 msf in Manhattan since the start of 2017. 5.7% Plaza North $115.39 WeWork accounts for more than 3.0 msf 6.5% Hudson Yards $110.10 Hudson Square 6.9% Greenwich Village $99.60 of this total. Many small businesses and Union Square 7.1% Soho $98.05 some entrepreneurs (including some that Chelsea 7.5% Union Square $86.21 may not show up in employment numbers) Flatiron 8.0% Plaza South $84.53 / UN 8.4% are opting for coworking space. Google is $82.70 Midtown South 8.6% South $82.32 the first firm that landlords around Hudson Penn Plaza/Times Square South 9.1% Midtown South $81.77 Square turn to; WeWork has become the Hudson Yards 9.8% Chelsea $80.51 saving grace for owners saddled with a big 10.1% Midtown $80.27 Grand Central 10.4% Hudson Square $77.68 block of commodity space. Few question Times Square 10.5% Manhattan $76.36 the longevity of Google’s impact in Midtown Midtown 10.6% Grand Central $74.23 South, but some of the coworking footprint Manhattan 10.7% $74.13 Columbus Circle 10.7% Tribeca $72.53 will surely come back to market in a future Soho 10.8% East Side / UN $71.85 downturn. Plaza South 11.3% WTC/Brookfield Place $69.84 Park Avenue South 11.6% Flatiron $67.36 Financial District 12.3% Downtown $63.38 Construction Tsunami Downtown 13.1% Penn Plaza/Times Square South $61.96 WTC/Brookfield Place 15.8% Financial District $57.56 Perhaps the most impactful trend of this Plaza North 16.4% City Hall $52.50 cycle has been Manhattan’s construction US Index 17.9% US Index $34.69 boom. More than 16 msf has delivered since 0% 5% 10% 15% 20% $0 $30 $60 $90 $120 $150 2010, and another 18.5 msf is currently underway. This is Manhattan’s biggest development boom since the 1980s. This Major Transactions long overdue space brought tenants into the market earlier than usual. It helped that Tenant Sq Feet Address Market Area Deutsche Bank 1,100,000 One Columbus Cir Columbus Circle the wave coincided with a sea-change in Bloomberg* 468,000 120 Park Ave Grand Central how businesses view their workplace as a Ralph Lauren^^ 350,000 601 W 26th St Chelsea branding, recruiting and retention tool. Over Peloton 312,000 441 9th Ave Hudson Yards the last few years tenants have been signing Millennium Management 300,000 399 Park Ave Plaza II very forward-looking leases – in most Google 266,021 315 Hudson St Hudson Square cases, several years ahead of occupancy. WeWork 236,000 1440 Penn Plaza/Times Square South Extensive relocation activity has also forced Twitter^^ 215,000 249 W 17th St Chelsea redevelopment of buildings that lost tenants Cahill Gordon & Reindel 201,621 32 Old Slip Financial District to Hudson Yards and Manhattan West. Google 178,767 345 Hudson St Hudson Square

Sum of Leases 3,627,409 Hudson Yards was just the opening act *Renewal for the Far Westside. By 2025 Manhattan ^^Expansion could have an additional 10 to 15 msf a strong upside in the coming years, but equity markets and foreign investors have with development split between Midtown tenants with looming lease rollovers can spent hundreds of million of dollars, if not West and Penn Plaza/Westside. Vornado expect a big jump in rent. billions, to create new (Hudson Yards) is moving ahead with significant work in or revamped superblocks (Rock Center and Penn Plaza. It is just an anchor tenant away Brookfield Place). Many of these owners from forging ahead with the long-awaited High-Octane Equilibrium are better equipped to ride out a future redevelopment of . downturn or a pullback in the coworking The Farley Building, Two Penn and ’s economy and office market sector. Any significant contraction in foreign Pennsylvania will all be top contenders should emerge from this cycle on stronger investment, or additional spike in borrowing to land the largest tenants with lease footing. The financial sector is still the core costs would impair future development. expirations in 2020 and beyond. Within the catalyst for demand in the office market It may also jeopardize continued record next several years the distinction between and economy, but TAMI has dug its roots concessions, particularly improvement the Far Westside and Times Square may in much deeper. Tenants also largely got allowances that are critical to mitigating blur as an office corridor from 11th Avenue what they needed in this cycle, an infusion soaring construction costs. to 8th Avenue takes shape. of new space as well as generous build-out packages. An odd high-supply/high demand It is likely that 2017 and 2018 will end up The rise of Hudson Yards and Manhattan equilibrium has prevailed in Midtown and being the peak years for this cycle. Can West, coupled with strong demand in Downtown over the last two years. Even 2019 come close? Even if leasing falls by Midtown South has put the squeeze with record leasing, availability has barely 15% from 40 msf, that would still equate on tenants in Penn Plaza/Times Square budged, ending 2018 at 10.7% - down only to more than 30 msf. So far 2019 is not South. As recently as a couple of years 30 basis points from year-end 2017. shaping up to have a big dropoff. Barring ago this was still Midtown’s value-play a sharp decline in business optimism, the submarket with the most amount of sub- The city will also come out of this cycle flight to quality seen of late is expected to $60 space options in Midtown. Owners in with significant changes to its ownership. continue. Volatility in equity markets and the surrounding blocks stand to capture Institutional landords flush with capital from the nation's capital could dampen demand, though.

savills-studley.com/research 03 Savills Studley Report | New York City

Leasing Available Availability Asking Rents Map Submarket Total Activity SF Rate Per SF*

% pp % SF This Change Year This Change Year This Change Year This Quarter (1000's) Quarter from Ago Quarter from Ago Quarter from Ago Last Qtr. Last Qtr. (1) Last Qtr. Columbus Circle 28,365 1,339 3,047 4.8% 2,554 10.7% 0.5% 9.0% $74.13 -4.1% $74.35 1 Columbus Circle - Class A 20,062 1,305 1,852 -0.4% 1,394 9.2% 0.0% 6.9% $80.97 -4.4% $80.38 Times Square 34,130 512 3,586 23.4% 3,723 10.5% 2.0% 10.9% $82.70 10.3% $83.37 2 Times Square - Class A 29,320 406 3,172 31.7% 2,385 10.8% 2.6% 8.1% $86.02 4.2% $90.30 Hudson Yards 9,264 461 911 -0.4% 282 9.8% -3.1% 4.0% $110.10 6.2% $81.31 3 Hudson Yards - Class A 7,957 441 827 -7.6% 171 10.4% -5.2% 3.0% $115.72 10.5% $110.94 Penn Plaza/Times Square South 54,836 1,654 5,012 -9.0% 5,222 9.1% -0.9% 9.5% $61.96 -2.9% $62.03 4 Penn Plaza/Times Square South - Class A 7,730 157 518 -24.2% 770 6.7% -2.1% 10.0% $88.02 2.0% $81.69 Plaza North 20,683 250 3,384 -0.3% 3,644 16.4% 0.0% 17.6% $115.39 4.4% $102.70 5 Plaza North - Class A 16,551 221 2,845 -3.2% 3,210 17.2% -0.6% 19.4% $124.12 6.8% $106.83 Plaza South 33,152 903 3,758 -7.3% 4,195 11.3% -0.9% 12.7% $84.53 -7.2% $90.92 6 Plaza South - Class A 30,039 741 3,418 -7.4% 3,706 11.4% -0.9% 12.3% $86.08 -7.8% $94.04 Grand Central 72,923 2,075 7,561 -5.6% 8,244 10.4% -0.6% 11.4% $74.23 0.5% $70.33 7 Grand Central - Class A 38,937 1,447 3,839 -8.5% 4,678 9.9% -0.9% 12.1% $85.79 2.1% $77.94 East Side/UN 20,589 455 1,728 -15.6% 1,879 8.4% -1.5% 9.1% $71.85 -0.5% $77.39 8 East Side/UN - Class A 14,137 304 1,065 -21.7% 1,324 7.5% -2.1% 9.4% $77.69 2.1% $81.33 9 Chelsea 17,468 765 1,306 -22.4% 1,948 7.5% -2.2% 11.3% $80.51 6.1% $73.73 Chelsea - Class A 1,059 33 333 0.0% 376 31.5% 0.0% 47.3% $138.25 2.2% $129.54 10 Flatiron 14,028 312 1,125 2.3% 1,057 8.0% 0.2% 7.5% $67.36 4.5% $67.33 Flatiron - Class A 858 N/A N/A N/A 58 N/A N/A 6.7% N/A N/A $57.00 11 Park Ave South/Madison Square 20,508 334 2,380 26.6% 1,608 11.6% 2.4% 7.8% $82.32 11.8% $66.30 Park Ave South/Madison Sq. - Class A 3,776 N/A 396 297.9% 0 10.5% 7.9% 0.0% $125.52 28.1% N/A Union Square 8,208 341 583 17.0% 583 7.1% 1.0% 7.1% $86.21 15.0% $75.68 12 Union Square - Class A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Greenwich Village 7,505 88 489 -15.5% 582 6.5% -1.2% 7.9% $99.60 9.7% $79.79 13 Greenwich Village - Class A 995 0 180 -7.6% 75 18.0% -1.5% 9.1% $162.82 29.1% $127.05 14 Hudson Square 10,140 579 697 -39.8% 939 6.9% -4.5% 9.3% $77.68 3.9% $76.65 Hudson Square - Class A 2,211 24 372 9.1% 251 16.8% 1.4% 11.4% $81.43 7.7% $87.24 15 Soho 4,590 125 497 -10.7% 593 10.8% -1.3% 12.9% $98.05 2.0% $84.10 Soho - Class A 328 45 159 -20.8% 116 48.5% -12.7% 35.3% $127.47 12.4% $139.15 16 Tribeca 5,130 14 517 -31.3% 399 10.1% -4.6% 7.8% $72.53 2.9% $73.27 Tribeca - Class A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 17 City Hall 4,387 132 252 43.8% 297 5.7% 1.7% 6.8% $52.50 0.2% $53.86 City Hall - Class A N/A N/A NA NA N/A N/A N/A N/A N/A N/A N/A 18 WTC/Brookfield Place 31,711 668 5,016 -11.3% 5,579 15.8% -2.0% 17.6% $69.84 0.7% $73.36 WTC/Brookfield Place - Class A 20,956 477 3,577 -9.2% 4,061 17.1% -1.7% 19.4% $74.74 1.3% $78.89 19 Financial District 48,091 907 5,906 -8.8% 5,500 12.3% -1.2% 11.4% $57.56 -0.4% $57.00 Financial District- Class A 21,817 506 3,193 -11.1% 3,426 14.6% -1.8% 15.7% $61.53 -0.4% $60.48 1-8 Midtown 273,941 7,647 28,988 -2.5% 29,744 10.6% -0.4% 11.0% $80.27 0.2% $78.27 Midtown - Class A 164,732 5,022 17,535 -2.8% 17,636 10.6% -0.5% 10.9% $92.58 1.1% $89.18 Midtown South Total 82,446 2,544 7,077 -5.1% 7,310 8.6% -0.5% 8.9% $81.77 7.5% $73.02 9-15 Midtown South - Class A 9,227 102 1,440 23.2% 876 15.6% 2.9% 10.0% $121.94 11.5% $113.68 Downtown Total 89,318 1,722 11,690 -10.5% 11,776 13.1% -1.5% 13.2% $63.38 -0.1% $65.23 16-19 Downtown Total - Class A 42,774 982 6,770 -10.1% 7,487 15.8% -1.8% 17.5% $68.51 0.7% $70.47 Manhattan Total 445,705 11,913 47,755 -5.0% 48,830 10.7% -0.6% 11.0% $76.36 1.8% $74.34 Manhattan Total - Class A 216,732 6,107 25,746 -3.7% 25,998 11.9% -0.6% 12.2% $87.90 2.5% $84.62

Please contact us for further information

Savills Studley Chairman & CEO Corporate Research Contacts Mitchell S. Steir Keith DeCoster - Director, U.S. Analytics 11th Floor [email protected] [email protected] New York, NY 10022 (212) 326-1000 (212) 326-1000 Lesley Kamnitzer - Research Manager [email protected]

*Rent and availability rates in submarkets with a limited amount of inventory are sometimes subject to large fluctuations. (1) Percentage point change for availability rates. Unless otherwise noted, all rents quoted throughout this report are average asking gross (full service) rents psf. Statistics are calculated using both direct and sublease information. Short-term sublet spaces (terms under two years) were excluded.

The information in this report is obtained from sources deemed reliable, but no representation is made as to the accuracy thereof. Statistics compiled with the support of The CoStar Group. Copyright © 2019 Savills Studley

04 www.savills-studley.com @SavillsStudley