A vibrant economy fuels leasing activity, and that describes to a tee the Manhattan office market in 2017. Economic gains last year pushed office employment to a record high of 1.66 million, a momentum that contributed to Manhattan’s best year of leasing activity since 2014. This impressive performance was heavily impacted by relocation and expansion transactions in excess of 100,000 sq. ft.
These sizeable deals kept asking rents and availability stable. The financial, insurance and real estate (FIRE) sector was also resurgent in 2017, accounting for 38% of the year’s total. Leasing by coworkingand other serviced office space providers was another big trend last year, continuing activity that has been increasingly meaningful to the Manhattan market in recent years.
While asking rents remained virtually unchanged year over year, the market saw a decline in taking rents and enhanced concessions, which diminished net effective rents. Despite above-average leasing, year-end absorption was negative 544,000 sq. ft.—a total that had no discernible influence on the availability rate.
Looking ahead to 2018, economic conditions will be the determinative factor in the market. In the near term, the reduced corporate tax rate and other stimuli provided under the new federal tax law should provide a modest boost to employment, wages and business investment that should lend additional impetus to office leasing. The federal policy trend toward relaxed financial regulations also bodes well for the FIRE sector’s continued expansion in New York City. A headwind against the economy is the tight labor market, which could restrainemployment growth and subdue leasing expansion.
With positive economic forces at work locally, nationally and globally, employment growth and strong leasing activity seem on tap for Manhattan in 2018. That said, the market could see a small increase in the availability rate, the result of a modest uptick in available space, as companies get closer to move dates on newly constructed space pre-leased in previous years and their current spaces come to market. Average asking rents are likely to remain flat, and generous concession packages in line with 2017 levels will continue to be the norm.
The underlying trends propelling the coworkingand other serviced office space provider expansions should also continue, with more tenants showing willingness to spend big dollars on a per-sq.-ft. basis, in order to achieve maximum real estate flexibility and save on capital fit-out costs.