CBRE Group unveils Q3 2013 Manhattan Retail and Office Market Review

Manhattan retail activity and rents are being driven by population and tourism growth throughout the borough, according to a panel of CBRE Group, Inc. Retail experts. The Fifth Ave. corridor between 49th and 59th Sts. achieved the highest average retail rent at $3,000 per s/f, according to CBRE's Fall 2013 "Manhattan Retail Market" report, released at the firm's third quarter 2013 Manhattan Market Research Media breakfast in its Midtown office. "As Manhattan's population and tourism continue to grow, we are seeing greater demand for retail across many of Manhattan's neighborhoods," said Pamela Murphy, senior vice president, Global Research and Consulting, CBRE. "This growth in demand is encouraging major retailers to expand their footprints in Manhattan, which has enabled landlords to achieve higher rents. Add to this equation the attractive new developments for retail at Brookfield Place, Hudson Yards and the World Trade Center, and retailers have increased location opportunities to go along with the traditional retail corridors where they already have or want to have a presence." The CBRE Retail panel of Andrew Goldberg, Richard Hodos, Susan Kurland and David LaPierre pointed to 2013's mega deals to date, which include H&M opening its largest store in the world at 1 Herald Center, as well as Polo Ralph Lauren's and Valentino's huge new stores at 711 Fifth Ave. and 693 Fifth Ave., respectively, as the vanguard of retail expansion in Manhattan. In reviewing Manhattan's office market at the third quarter mark, Peter Turchin, executive vice president, pointed out the "increasingly positive delta in space absorption in Midtown's West Side and Plaza District submarkets," as well as in Downtown's World Trade Center-World Financial Center submarket. However, Turchin also noted that direct space had been added to the market in the Penn Station and Grand Central submarkets, and particularly in the Flatiron district, where "landlords are trying to capture the change in that submarket by repositioning buildings such as 114 Fifth Ave. and 90 Fifth Ave. to eventually command higher rents." Kyle Schoppmann, senior managing director, noted that the real estate market, which is reputed to be slow in the summer, has actually historically performed well in that season. This year was particularly busy in the Sixth Ave./Rockefeller Center submarket, which has made a leasing comeback after a soft 2012. Q3 2013 Manhattan Office Quarterly Snapshot Market Highlights: * Midtown - Q3 2013 leasing activity was slightly above the market's five-year quarterly average of 3.51 million s/f. Meanwhile, total leasing activity for the first three quarters paced 14% ahead of the same January-to-September period in 2012. The FIRE sector accounted for the quarter's top three deals, led by Capital One's 209,000 s/f new lease at 299 Park Ave. The quarter's above-average leasing activity, combined with several space withdrawals, eclipsed the new availabilities brought to market during the quarter, resulting in Midtown's first quarter of positive absorption since Q3 2012. Year-to-date absorption remained in negative territory, but far below the levels recorded during the same nine-month period in 2012. The market's overall availability rate dropped 20 basis points during Q3 2013 to 12.3%, while the sublease availability rate decreased 10 basis points to 2.4%. Midtown's average asking rent crossed the $70 mark for the first time since January 2009, rising $0.68, or 1%, during the quarter to $70.19 per s/f. * Midtown South - Q3 2013 leasing activity was 6% below the market's five-year quarterly average of 1.02 million s/f and 20% below the previous quarter's activity. Renewals and expansions accounted for four of the five largest deals completed during Q3 2013, led by Beth Israel Medical Center's 99,000 s/f renewal at 111 Eighth Ave. The quarter's largest new lease was Telx's 73,000 s/f deal at 32 Avenue of the Americas. Midtown South saw 50,000 s/f of positive absorption during Q3 2013, with the quarter's leasing activity, coupled with space withdrawals, counterbalancing new availabilities brought to market during the three-month period. Despite two consecutive quarters of positive absorption, year-to-date net absorption remained in negative territory. During the quarter, the overall availability rate dropped 10 basis points to 9.9%, while the sublease rate decreased 20 basis points to 2.0%. Midtown South's average asking rent rose $0.77, or 1%, during the quarter to an all-time high $64.21 per s/f. At quarter's end, Midtown South's rent represented 91% of Midtown's average asking rent of $70.19 per s/f. At the same point last year, Midtown South's average asking rent represented 82% of Midtown's. * Downtown - Downtown continued its strong performance, with Q3 2013 leasing activity outpacing the five-year quarterly average of 1.04 million s/f. by 47%. Notably, this was Downtown's 10th straight quarter of above-average leasing activity. Year-to-date leasing activity grew to 3.99 million s/f, 22% ahead of the same nine-month period in 2012. Four of the top five transactions were new space commitments, led by New York City Health & Hospitals Corporation's 221,000-s/f deal at 55 Water St. Q3 2013's strong leasing activity, coupled with space withdrawals, eclipsed new availabilities brought to market during the quarter, resulting in significant positive net absorption. However, year-to-date net absorption remained in negative territory, on par with 2012 levels. The overall availability rate dropped 130 basis points during Q3 2013 to 14.5%, while the sublease availability rate was unchanged from the previous quarter at 1.9%. The average asking rent was stable, inching down $0.17 per s/f. during the quarter. Year-over-year, the average asking rent was up 17%, or $6.83 per s/f.