Cushman Report: Even Manhattan Humbled in 2008 

After a steep decline in office rents and leasing activity at the end of 2008, many owners are attempting to lure tenants with aggressive deals, according to Cushman & Wakefield Inc.’s year-end report on the Manhattan office market. Office leasing volume in Manhattan dropped to 19.1 million square feet last year, a 19 percent drop from 2008 and the second-lowest total since 1997. In the 241 million-square-foot Midtown district–largest of Manhattan’s three submarkets–asking rents dipped more than $4 per square foot in the fourth quarter, to $79.81. “We don’t recall a drop like this in recent history,” said Joseph Harbert, chief operating officer for Cushman & Wakefield’s New York City metropolitan region, during a briefing this morning. Disruption in the capital markets hit Midtown particularly hard last year in part because many major financial services tenants moved there from Downtown Manhattan after the Sept. 11, 2001 terrorist attacks, Harbert noted. The leasing market ended the year on an especially quiet note. During the fourth quarter, Midtown registered only 2.1 million square feet of new leases and renewals. That figure was just 54 percent of the six-year rolling average for the fourth quarter. Meanwhile, Midtown vacancy at the end of the year stood at 9.2 percent. “Given the paucity of tenants in the marketplace, I think everybody’s being as aggressive as they possibly can,” Harbert said. In Downtown Manhattan, leasing activity fell 40 percent compared to 2007, ending the year at 3.6 million square feet. Deals of 100,000 square feet and up accounted for about 44 percent of that volume. After a slight bump during the second and third quarters, Downtown rents ended the year almost exactly where they started–at $47.85 per square foot. Andrew Peretz, executive director of Downtown office leasing for Cushman & Wakefield, attributed much of Downtown’s stability to its emergence as a residential community. “It’s a very different place than it was before 9/11,” he explained. Meanwhile, the capital markets meltdown brought Manhattan’s soaring investment sales market back to Earth in 2008. Although a total of $19.2 billion in transactions closed last year, volume dropped 60 percent from the record $47.8 billion in trades tallied in 2007, Harbert reported. Leading trends included more buying by foreign-based investors, whose share of investment activity more than tripled to 39 percent from the previous year. Meanwhile, private investors were pulling back; they accounted for 65 percent of sales volume in 2007 but only 34 percent last year. Harbert cited estimates suggesting that Manhattan asset prices could slide 20 percent to 30 percent from 2007 levels. However, he cautioned that accurate predictions are difficult because analysts have so little recent transaction data to go on. As the office sector retrenched in 2008, much of Manhattan’s prime retail submarkets held steady or even enjoyed a boost. Fifth Avenue retained its crown as the world’s most expensive retail corridor as average asking rents hit $2,182 per square foot. On the Upper West Side, rents ended the year at $334 per square foot, basically a wash with 2007, even as availability declined from 7.6 percent to 5.7 percent. Manhattan’s lure as a tourist destination helped boost retail last year, but change is in store. Manhattan’s retail market is at what Harbert termed “the start of deceleration,” and a softening trend is highly probable.