Manhattan office space market in 2009

Despite a tough economy, Manhattan remains the top economic center in the world and still has the most expensive commercial real estate in the country. Prime real estate will not come cheap, unless you go through a long, time consuming search.

Manhattan’s office leasing vacancy rate has been fluctuating but the present rate is 10.9% which is a two year high. Unfortunately, the forecast isn’t much better. Experts, noting that the rate is already higher than what was predicted, are guessing that the rate may exceed 12% within the next two years.

With office space to lease increasing and surplus space becoming available, it is not surprising that this has impacted the leasing cost. Compared with last year, the cost to lease office space has dropped by 4 %. Forecasters predict that lease rates will drop from 12 to 15%.

Compounding the problem is the absorption rate which is the number of units entering into the market. If the rate is rising, it means that there are more units entering the market than there are people to lease them. Manhattan has a rising rate because of job layoffs, new construction, and tenants moving to other locations or downsizing. There have been 50,000 jobs lost this year and companies like Chase are eliminating a lot of office space. In addition, new construction, like the Bank of America tower, is adding a large number of office space available to lease.

Various areas of Manhattan are unique and have different leasing situations. The main areas are Midtown, known as the business district, Midtown South, and Downtown.

Midtown office space has the most expensive lease rates but still has low vacancy rates. Their rate is under 9% and excellent bargains can be found on class B and C buildings. The average cost per square foot for a flat lease C building is $40.06 with an executive suite going for $90.10 a square foot. This is a great price for the area and although the rate for executive suites in Midtown is double, the huge savings on fit out and all inclusive costs make them much more cost effective than traditional leases.

Midtown South has a commercial office space rate of 10% due to high vacancies in the Chelsea and Flatiron districts. The rents are much lower than Midtown, averaging about $40 per square.

Downtown’s office vacancy rate is just under 9% and, like Midtown South, have affordable rates very similar to Midtown South.

Overall, while there is a difference of opinion on which way rates will go in the near future, Midtown will always have the more expensive real estate. However there currently there are some great office leasing rates to be found if you look hard enough, especially executive office space as the business center operators offer rent free period and discounted rates to occupiers ready to commit to a minimum of 12 months lease.