New York, NY The Manhattan office market started strong in 2016 with healthy TAMI sector leasing, limited available sublet space, and the strongest labor force in more than 40 years, according to Colliers International Group Inc. And with investor demand still robust, office properties have continued to trade at near-record pricing in the first quarter. At 9.2 msf, first quarter Manhattan office leasing activity was 27.3 percent above the ten-year average and up 11.0 percent year-over-year. Even with some downward repricing in various submarkets, the overall Manhattan asking rent increased for the 12^th consecutive quarter. In fact, asking rents were up in Midtown, Midtown South and Downtown, in 12 of the 17 submarkets, and in all three Manhattan building classes (A, B, and C). High-priced inventory — including 390 Madison Avenue (844,000 sf), 5 Manhattan West (306,000 sf), and 485 Lexington Avenue (298,000 s/f) — helped drive up overall first quarter asking rents to $72.46/sf, just 1.2 percent off the all-time high. The added stock also resulted in 1.85 msf of negative Manhattan absorption, the highest level of negative absorption since the third quarter of 2011. The first quarter of 2016 also recorded a 9.9 percent Manhattan availability rate, reversing three prior quarters of consecutive tightening availability.  

MANHATTAN LEASING ACTIVITY (MSF)	?	?	?	?	?
	Q1 ’16	Q4 ’15	Quarterly change	Q1 ’15	Annual change
Manhattan Overall	9.2	7.9	17.0%	8.3	11.0%
Midtown	4.4	4.2	5.1%	4.9	-10.9%
Midtown South	2.7	2.6	3.1%	2.6	4.0%
Downtown	2.2	1.1	94.6%	0.8	166.8%

  “The Manhattan office market is off to a good start in 2016 with several TAMI sector firms maturing and taking more space, the local economy still producing new jobs, and continued demand from investors to purchase core assets,” said Joseph Harbert, eastern region president for Colliers International. “Though selective, we also saw downward repricing in some properties as landlord ebullience turned to practical reality. There was recognition among owners that upward repricing in recent quarters might have gone just a bit too far. This is a normal market adjustment, with rents still at or near historic levels.” MIDTOWN Midtown recorded a healthy 4.4 msf of leasing activity, 5.1 percent above the previous quarter and 17.0 percent above the ten-year average. At $81.71 per s/f, the Midtown average asking rent increased for the fifth consecutive quarter and was up 1.4 percent over the previous quarter. However, Midtown’s average is still 11.2 percent below the all-time high of $92.04 per s/f during the third quarter of 2008. The addition of several large blocks — 390 Madison Avenue, 485 Lexington Ave. and 1325 Avenue of the Americas — led to 1.4 msf of negative absorption and a 0.6pp increase to the availability rate to 10.6 percent.  

MANHATTAN ABSORPTION (SF)	?	?	?	?	?
	Q1 ’16	Q4 ’15	Q1 ’15
Manhattan Overall	-1,848,939	526,530	-1,421,333
Midtown	-1,427,827	-906,762	-425,710
Midtown South	-1,079,684	705,025	855,44
Downtown	658,572	728,267	-1,851,067

  MIDTOWN SOUTH Midtown South had yet another strong quarter, with 2.7 msf of leasing. The TAMI sector had a 52 percent share of leasing — up more than double from the previous quarter — and included Facebook’s deals totaling close to 280,000 s/f. And the asking rent rose again, to $66.83 per s/f, a new all-time high. Meanwhile, Midtown South saw its availability rate increase for the first time in two years, to 7.5 percent, while recording 1.1 msf of negative absorption, partly due to the addition of a 306,000-sf block at 5 Manhattan West being vacated by Associated Press.  

MANHATTAN AVAILABILITY RATES	?	?	?	?	?
	Q1 ’16	Q4 ’15	Quarterly change (percentage point)	Q1 ’15	Annual change (percentage point)
Manhattan Overall	9.9%	9.6%	0.3pp	10.7%	-0.8pp
Midtown	10.6%	10.0%	0.6pp	11.1%	-0.5pp
Midtown South	7.5%	7.0%	0.5pp	7.7%	-0.2pp
Downtown	12.3%	12.6%	-0.3pp	14.6%	-2.3pp

   DOWNTOWN At 2.2 msf, Downtown doubled its leasing activity compared to the fourth quarter of 2015. At nearly 660,000 s/f, absorption was positive and Downtown was the only major market with positive first quarter absorption. Similarly, Downtown was the only market where the availability rate tightened — to 12.3 percent — after a 0.3pp change from the fourth quarter. Rents increased to $57.77 per s/f, another all-time high. However, the bulk of Lower Manhattan leasing activity was the result of McGraw Hill Financial’s 900,000-sf renewal at 55 Water Street, which was Downtown’s largest lease since 2013 and, accordingly, had a significant impact on quarterly fundamentals. In fact, at 1.52 msf, the Financial District topped Manhattan’s 17 submarkets in quarterly leasing activity.  

MANHATTAN AVERAGE ASKING RENTS (P/SF)	?	?	?	?	?
	Q1 ’16	Q4 ’15	Quarterly change	Q1 ’15	Annual change
Manhattan Overall	$72.46	$71.50	1.3%	$67.62	7.2%
Midtown	$81.71	$80.61	1.4%	$76.15	7.3%
Midtown South	$66.83	$66.07	1.2%	$62.02	7.8%
Downtown	$57.77	$57.63	0.2%	$55.00	5.0%

  CAPITAL MARKETS Manhattan office sales activity was strong in the first quarter of 2016, primarily driven by core property trades. Total transactional volume reached $6.6 billion, with average Manhattan pricing at $892 psf, near record territory. The average transaction size was a staggering $468 million, highlighted by the $1.93 billion sale of 787 Seventh Avenue and the $1.7 billion sale of the Equitable Building at 1285 Avenue of the Americas. While investor sentiment appears to have peaked in 2015, the anticipated more conservative underwriting has yet to have an impact on pricing. Demand remains strong from all buyer profiles and interest rates have remained relatively unchanged. There are nearly $10 billion of properties under contract or on the market for sale, indicating that 2016 will likely be a solid year for office investment sales.  

MANHATTANINVESTMENT SALES (Tracks all office trades $15.0 million+)	?	?	?	?	?
?	1Q 2016	2015	2014	2013	2012
Total sales	$6.6 bil	$27.3 bil	$16.8 bil	$19.7 bil	$9.1 bil
Average sale price	$468 mil	$350 mil	$218 mil	$303 mil	$147 mil
Average price/sf	$892	$996	$715	$769	$509

  Additional highlights from Colliers International’s 2016 first quarter Manhattan analysis: • The TAMI sector dominated first quarter Manhattan leasing (46 percent), followed by the FIRE sector (25 percent) and professional services (14 percent). • Pricing for blocks greater than 250,000 s/f increased to an average of $84.81 per s/f, a 17 percent premium to the market average. • Sublet availability was stable for the third consecutive quarter, at 1.4 percent, while Downtown replaced Midtown South as Manhattan’s tightest sublet market. This is Manhattan’s lowest sublet availability rate since the first quarter of 2008. • As of February, New York City’s labor force (4.25 million) was larger than at any point in at least the last 40 years according to the New York State Department of Labor. • The Plaza District was again Manhattan’s most expensive submarket, at $95.23/sf, while the U.N. Plaza had the lowest availability rate at 1.5 percent. • The top four largest first quarter leases were McGraw Hill Financial’s 900,000-sf renewal at 55 Water Street, Citadel’s 211,000-sf new lease at 425 Park Avenue, Salesforce.com’s 203,000-sf new lease at 1095 Avenue of the Americas, and Facebook’s 200,000-sf new lease at 225 Park Avenue South.? Tags: