Cushman & Wakefield’s 3Q Commercial Market Report:
New York’s Commercial Real Estate Recovery Continues

Cushman & Wakefield just released third quarter statistics for the Manhattan commercial real estate market that show leasing and investment activity up strongly year over year.

Through the first nine months of 2010, the value of commercial property investments closed and under contract in Manhattan totaled $9.4 billion, up 168% from the $3.5 billion of investment transactions completed in all of 2009. In Midtown, closed property sales (excluding properties in contract) totaled $6.3 billion, up 103.5% from the $3.1 billion completed last year. In Midtown South, closed property sales totaled $1.1 billion, up 370.2% from the $235 million completed last year. And in Downtown, closed property sales totaled $611 million, up 213.3% from the $195 million completed last year.

“The increase in investment activity year to date is significant for the market overall, despite the fact that last year set an extremely low benchmark,” said Joseph R. Harbert, Cushman & Wakefield’s chief operating officer for the New York Metro Region. “What this level of activity suggests is that investors have taken note of improving market fundamentals and have identified Manhattan as a primary investment target.”

New leasing activity, an indicator of market demand for available office space, rose 65.8% for the first nine months of 2010 as compared to the same period in 2009. Leasing activity overall measured 18.8 million SF as of the end of September, compared with 12.6 million SF through the first nine months of 2009 and 16.3 million SF for all of 2009.

Despite the growth in leasing, the overall average vacancy rate was up slightly to 10.9 % at the end of September from 10.8 % at the end of June. The increase was due largely to the addition of more than 2 million SF of available space in three Downtown Manhattan properties—approximately 1.5 million  of which was related to Goldman Sachs’ relocation to its new headquarters. The Downtown vacancy rate rose to 12.1% at the end of September from 9.9% at the end of the second quarter.

In contrast, Midtown and Midtown South both experienced vacancy rate declines in the third quarter. Midtown’s vacancy rate declined substantially to 11.0% at the end of September from 11.5% at the end of June. Midtown South’s vacancy rate declined slightly to 9.2 from 9.3% in the same time period.

“We expected to see the increase in vacancy Downtown this quarter with the addition of space at 85 Broad Street, One New York Plaza and 70 Pine Street,” said Ken McCarthy, Cushman & Wakefield’s managing director for New York Metro Region Research. “However, this is all high quality, well located class-A space Downtown and we expect relatively strong demand for it.”

The sublease vacancy rate—which represents space available directly from tenants with excess inventory—declined to 2.0% at the end of September from 2.4% at the end of the second quarter. Sublease space now accounts for only 18.1% of all available office space in Manhattan, down from a peak of 28.2% in April 2009.

At the end of September, overall average asking rents in Manhattan registered $53.80, down from $54.31 at the end of the second quarter. Average asking rents for class-A space declined to $60.69 from $61.33. In Midtown, both average asking rents and class-A average asking rents rose in the third quarter.

Third quarter statistics also showed that the Manhattan retail market continued to strengthen along the city’s prime retail shopping streets.