Finance, Law and Tech Dominate Manhattan's Office Occupancy as Rents Rise

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According to CBRE Group, at the end of the first quarter 2015, Finance, Law and Tech industries dominated Manhattan's office occupancy. Leading the way was the Finance sector, occupying 28.2% of market space. The Legal sector was 10.6% and Tech at 6.3%, for a total of 45.1% of the Manhattan office market.
 
In reporting on the current state of the Finance sector in Manhattan office occupancy, Ben Friedland, executive vice president, CBRE, noted that, "the greatest amenity in New York City is the ability to walk to and from work. As an increasing percentage of financial firms' principals relocate their residences Downtown, the desire for nearby office space in these areas continues to grow. That said, Park/Fifth/Madison remains the epicenter for boutique financial service firms."
 
Regarding space use, Mr. Friedland said, "An increasingly important space requirement for these firms is 'visual control,' the ability for the leading principal to overlook the entire workforce. New construction that features virtually column-free interiors is sought after for this reason."
 
"Law firms are transitioning to a more collaborative environment and are utilizing space more efficiently," said Ken Rapp, vice chairman, CBRE. "Better use of interior and amenity spaces has led law firms to examine buildings with larger floor plates."
 
"The Tech sector has evolved to the point where firms overall are considering wider geographic parameters," said Sacha Zarba, executive vice president, CBRE. "However, location preferences remain specific depending on where they are in a company's 'life cycle.' Start-ups tend to prefer the Flatiron, Union Square and SoHo submarkets, while companies in growth or mature phases tend to favor the Madison Square Park/Park Avenue South, Chelsea and Hudson Square submarkets.

Brooklyn continues to evolve as a viable and preferred market for companies of all sizes. Tech spaces are still known for their emphasis on collaboration and innovation through 'accidental collisions' in lounge/communal areas that evoke a sense of community and creative energy. As the industry grows, companies are facing new space challenges relative to viable locations, aging building infrastructure and efficiencies, all critical components to a technology company's success."
 
In assessing the first quarter 2015 Manhattan office leasing market, CBRE reported that the overall Manhattan Q1 2015 average asking rent gained 7% year-over-year to $68.67 per square foot, from $64.40 per sq. ft. in Q1 2014.
 
Peter Turchin, vice chairman of CBRE's New York Agency Group, said that "activity remained vibrant in Manhattan and has continued its strong pace from fourth quarter of 2014 leasing."
 
Q1 2015 MANHATTAN OFFICE QUARTERLY SNAPSHOT MARKET HIGHLIGHTS:
 
MIDTOWN - Leasing activity in the first quarter totaled 4.53 million sq. ft., 15% above the five-year quarterly average of 3.93 million sq. ft., and 9% ahead of Q4 2014 leasing. The largest transaction in Midtown was the 550,000-sq.-ft. renewal and expansion commitment by Publicis at 1675 Broadway. Four of the top five transactions involved a renewal component. Absorption ended the first quarter in 2015 at negative 1.86 million sq. ft., as seven blocks of space greater than 150,000 sq. ft. were added to the market during the quarter. Midtown's quarterly availability rate, at 11.2%, is up 70 basis points (bps) from last quarter but down 70 basis points from Q1 2014. Q1 2015's average asking rent increased slightly to $76.15 from $74.92 in Q4 2014 and rose 3% from a year ago.
 
MIDTOWN SOUTH - Leasing activity in Q1 2015 totaled 1.39 million sq. ft., 9% above the five-year quarterly average of 1.27 million sq. ft. Of the three markets, Midtown South saw the smallest negative absorption, at negative 180,000 sq. ft. The Midtown South availability rate increased 20 basis points (bps) compared to Q4 2014, and dropped 60 bps from one year ago. The average asking rent is down slightly from Q4 2014, but up 6% from Q1 2014. The five new blocks greater than 50,000 sq. ft. to hit the market this quarter are spread out among five of the six Midtown South submarkets. The addition of large blocks offset Midtown South's shrinking vacancy rate, which held steady at 5.5%.
 
DOWNTOWN - During the first quarter of 2015, leasing activity totaled 1.15 million sq. ft., 13% lower than the five-year quarterly average of 1.32 million sq. ft. Absorption ended Q1 2015 at negative 1.5 million sq. ft.--mainly due to 1.2 million sq. ft. of direct space added at 28 Liberty Street. Due to large blocks of space added during the quarter, the availability rate increased an additional 160 basis points (bps) compared to Q4 2014, but dropped 140 bps from one year ago. Despite quiet leasing activity, rents in Downtown continue to soar, again breaking the all-time record set in Q1 2015, with a new high of $56.94. This is up 10% from Q4 2014 and up 17% from a year ago.