MARKETVIEW

Midtown South Manhattan Office, Q3 2016

Availability tops 9% for the first

time since 2014
Leasing Activity

0.70 MSF

Net Absorption

(0.44) MSF

Availability Rate

9.0%

Vacancy Rate

Average Asking Rent

6.3%

$69.13 PSF

*Arrows indicate change from previous quarter.

Leasing activity totaled 701,000 sq. ft. in Q3 2016,

45% below its five-year quarterly average.

Quarterly leasing activity was down 53% compared

to Q3 2015.

The availability rate increased 60 basis points (bps)

over the past three months and 110 bps from one
year ago.

Quarterly net absorption registered negative

444,000 sq. ft., bringing the year-to-date total to
negative 1.1 million sq. ft.

The average asking rent fell 2% year-over-year and

was virtually unchanged from last quarter.

Sublease availability increased 20 bps to 2.3% yearover-year, with an average asking rent that rose 4%
over the same period to $55.61 per sq. ft.

Midtown South leasing activity totaled 701,000 sq.

ft. during the third quarter, down 32% from Q2
2016. Leasing has cooled somewhat as the cost of
occupancy continues to stand at historical highs.
TAMI companies remain the most active tenants
in Midtown South, accounting for 49% of all
leasing, with technology and entertainment
companies accounting for 82% of that total.
The availability rate rose 60 bps quarter-overquarter to 9.0%, the first time it has reached this
level since Q3 2014. Midtown South continues to
be the most supply-constrained market in
Manhattan, without a single block of space greater
than 250,000 sq. ft. available since November
2014. Further, there are only seven blocks of
available space between 100,000 and 250,000 sq.
ft.well behind Manhattans other two markets.

Figure 1: Top Lease Transactions

Size (Sq. Ft.)

Tenant

Address

37,358

Deloitte Digital

330 Hudson Street

34,400

Winton Capital Management

315 Park Avenue South

31,753

DoubleVerify

233 Spring Street

30,543 (RE)

Embassy Row

325 Hudson Street

27,778 (R)

Lieff Cabraser Heimann & Bernstein

250 Hudson Street

Renewal (R), Expansion (E), Renewal and Expansion (RE)

Q3 2016 CBRE Research

Source: CBRE Research, Q3 2016.

2016 CBRE, Inc. |

M A R K E T V I E W MIDTOWN SOUTH MANHATTAN OFFICE

Sublease availability increased 20 bps from last

quarter to 2.3%, staying above 2% for the second
consecutive quarter and accounting for 25% all
available space on the market. The majority of
available blocks of sublet space are below 50,000
sq. ft., with only one block above 100,000 sq. ft.

Figure 2: Leasing Activity | Historical

MSF

Q1-Q3

Q4

6
5
4
3

Midtown South registered negative 440,000 sq. ft.

of net absorption during Q3 2016. Union Square,
the smallest Midtown South submarket, was the
only one in positive territory, registering 57,000 sq.
ft., driven by 109,000 sq. ft. of leasing. Union
Square was also the only submarket to outperform
its five-year quarterly leasing average.
The average asking rent currently stands at $69.13
per sq. ft., virtually unchanged from Q2 2016. This
is the third consecutive quarter when Midtown
Souths asking rent has been below $70 per sq. ft.
The average asking rent for direct space, at $71.78
per sq. ft., was virtually unchanged quarter-overquarter, while the average asking rent for sublet
space increased 4%, to $55.61 per sq. ft.

2
1
0
2009

2010

2011

2012

2013

2014

2015

2016

2015

2016

Source: CBRE Research, Q3 2016.

Figure 3: Leasing Activity | By Submarket

000s Sq. Ft.

5Y Quarterly Avg.

350

Q3 2016

300
250
200
150
100
50

The development pipeline remains muted, with

only 600,000 sq. ft. of office space scheduled to
come to market between now and 2018,
representing about 1% of Midtown Souths total
inventory. Notable developments include 61 Ninth
Avenue and 540 West 26th Street, which will likely
command premium rents.
L E A S I N G A C T I V I TY

Union Square is the only submarket to outpace the

previous quarters leasing activityat 109,000 sq.
ft., leasing is 64% above its Q2 2016 total.
Significant transactions include the expansions of
LearnVest at 95 University Place for 20,000 sq. ft.
and IMG Models at 304 Park Avenue South for
18,000 sq. ft. Despite being a strong quarter of
leasing for Union Square, not a single transaction
was above 20,000 sq. ft. NoHo/SoHo saw the
greatest decline quarter-over-quarter, falling 77%

Q3 2016 CBRE Research

Source: CBRE Research, Q3 2016.

Figure 4: Net Absorption | Historical

MSF
3
2
1
0
(1)
(2)
(3)
(4)
2009

2010

2011

2012

2013

2014

Source: CBRE Research, Q3 2016.

2016 CBRE, Inc. |

M A R K E T V I E W MIDTOWN SOUTH MANHATTAN OFFICE

and registering only 33,500 sq. ft. of leasing

activitythe first time since Q4 2014 that the total
dropped below 100,000 sq. ft. Further, Chelsea
registered 77,000 sq. ft. of leasing activity, down
50% from Q2 2016 and its first time below 100,000
sq. ft. since Q3 2010. Across the market, there was
not a single new lease completed this quarter
greater than 40,000 sq. ft., which helps explain the
large decline in leasing. Small deals accounted for
the vast majority of activity, with 76% of
transactions completed this quarter for 25,000 sq.
ft. or less.

Figure 5: Quarterly Net Absorption | By Submarket

000s Sq. Ft.
100
50
0
(50)
(100)
(150)
(200)

Source: CBRE Research, Q3 2016.

N E T A B S O RP TI ON

The negative 444,000 sq. ft. of net absorption

witnessed in the third quarter was largely driven by
the Hudson Square/Tribeca and Park Avenue
South/Madison Square submarkets. Park Avenue
South/Madison Square registered 120,000 sq. ft. of
negative absorption, as several spaces totaling
300,000 sq. ft. came to market, the largest block
being 153,000 sq. ft. at 315 Park Avenue South.
Hudson Square/Tribeca posted negative 165,500
sq. ft. of net absorption, following the addition of
several spaces totaling 172,000 sq. ft., ranging
from 12,000 to 50,000 sq. ft. NoHo/SoHo
registered 103,000 sq. ft. of negative absorption, as
several spaces totaling 108,000 sq. ft. came to
market, in tandem with only 33,500 sq. ft. of
leasing activity.
A V A I L AB I L I TY

Availability rose across nearly all Midtown South

submarkets, with the overall average ending Q3
2016 at 9.0%, up 60 bps quarter-over-quarter,
driven by the Hudson Square/Tribeca and
NoHo/SoHo submarkets. The availability rate in
Hudson Square/Tribeca was up 110 bps from the
previous quarter with the addition of 172,000 sq.
ft. of new availability. Likewise, NoHo/SoHo was
up 120 bps from last quarter, following the
addition of 108,000 sq. ft.

Q3 2016 CBRE Research

Figure 6: Sublease and Direct Availability Rate | Historical

%

Direct

16

Sublease

14
12
10
8
6
4
2
0
2009

2010

2011

2012

2013

2014

2015

2016

Source: CBRE Research, Q3 2016.

Figure 7: Availability Rate | By Submarket

%
20

Q3 2015

Q3 2016

Midtown South

15
10
5
0

Source: CBRE Research, Q3 2016.

2016 CBRE, Inc. |

M A R K E T V I E W MIDTOWN SOUTH MANHATTAN OFFICE

Figure 9: Average Asking Rent | Historical

A V E R A GE A S K I N G R E N TS

$ per Sq. Ft.

The average asking rent remained broadly flat

across all submarkets quarter-over-quarter.
Midtown South overall ended the quarter at $69.13
per sq. ft., virtually unchanged from Q2 2016.
Rents in Union Square increased 3% quarter-overquarter to $71.55 per sq. ft., driven by the removal
of below-market space at 95 University Place, as
part of LearnVests expansion, as well as the
removal of 32,000 sq. ft. at 33 Irving Place.

Overall

80

Sublease

70

$69.13

60
$55.61

50
40
30
2009

2010

2011

2012

2013

2014

2015

2016

Source: CBRE Research, Q3 2016.

TAKING RENT INDEX

The taking rent index posted an 80-bps increase

quarter-over-quarter, rising to 95.4%. Concession
packages for new leases of raw space completed
during the quarter included an average of $52 per
sq. ft. in tenant improvement allowance and 8
months of free rent.

Figure 10: Average Asking Rents | By Submarket

$ per Sq. Ft.
100

Q3 2015

Q3 2016

Midtown South

80
60
40

Figure 8: Concession Values | Rent Abatement and T.I. Allowance*

$ per Sq. Ft.

10,000-24,999 SF

25,000 SF+

20
0

Average

70
60

Source: CBRE Research, Q3 2016.

50
40
30

Figure 11: Taking Rent Index | Historical

20

10

105
100

0
0
Months

*Identical concession packages will overlap in graphic. Average excludes highest and lowest values.

Source: CBRE Research, Q3 2016.

10

12

95.4

95
90
85
80
75

Source: CBRE Research, Q3 2016.

Q3 2016 CBRE Research

2016 CBRE, Inc. |

M A R K E T V I E W MIDTOWN SOUTH MANHATTAN OFFICE

I N V E N TORY A T A G L A N C E

D E F I N I TI ON S

Availability Space that is being actively marketed and is available for tenant
build-out within 12 months. Includes space available for sublease as well as space
in buildings under construction.
Asking Rent Weighted average asking rent.
Concession Values The combination of rent abatement and T.I. allowance. The
graph is for new leases for raw space of 10,000 sq. ft. or greater consummated over
the past 3 months.
Leasing Activity Total amount of sq. ft. leased within a specified period of time,
including pre-leasing and purchases of space for occupancy, excluding renewals.
Net Absorption The change in the amount of committed sq. ft. within a specified
period of time, as measured by the change in available sq. ft.
Rent Abatement The time between lease commencement and rent
commencement.
Taking Rent Actual, initial base rent in a lease agreement.
Taking Rent Index Initial taking rents as a percentage of asking rents. This graph
represents a 6-month rolling weighted average (for size and month).
T.I. Tenant Improvements.
Vacancy Unoccupied space available for lease.
S U R V E Y C R I T ER I A

CBREs market report analyzes fully modernized office buildings that total 50,000+
sq. ft. in Midtown South, including owner-occupied buildings (except those owned
and occupied by a government or government agency). New construction must be
available for tenant build-out within 12 months. CBRE assembles all information
through telephone canvassing and listings received from owners, tenants and
members of the commercial real estate brokerage community.

C O N TAC TS

Nicole LaRusso
Director, Research & Analysis
+1 212 984 7188
Nicole.LaRusso@cbre.com

Beau Garrido
Senior Research Analyst
+1 212 984 8153
Beau.Garrido@cbre.com

Mike Slattery
Analyst Team Lead
+1 212 656 0583
Michael.Slattery@cbre.com

Danny Mangru
Senior Research Analyst
+1 212 895 0928
Danny.Mangru@cbre.com
To learn more about CBRE Research, or to access additional research reports,
please visit the Global Research Gateway at: www.cbre.com/researchgateway.

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