In the 3Q, Midtown’s leasing activity dropped to 2.2 million sf of total deals. That is down more than 30% from a five-year historical average. The vacancy rate increased to 11.2%, which is the highest is has been since 2016, and this area had a negative absorption of 2.1 million sf, which is Midtown’s highest since 2009. But there is no need to panic, according to a source. The negative absorption came from “large blocks of space coming online along with new developments”. Examples of this are Publicis Groupe’s 601k sf sublet space at 1675 Broadway and the Farley Post Office redevelopment at Penn Station. Because of the new developments, asking rents increased slightly to $90.81 per foot. In the 4Q, Midtown has already had some good activity with LinkedIn expanding 188,653 sf at the Empire State Building and law firm Katten’s 125k sf deal at 50 Rockefeller Center.
Tech companies are waiting in the shadows for the day when the redevelopment of the Farley building, Tishman Speyer’s Morgan North Post Office, and 30 & 50 Hudson Yards is done. FAANGs (Facebook, Apple, Amazon, Netflix and Google) are hovering like vultures waiting to grab a spot, even though they already have offices in the neighborhood. One reason for this wave of redeveloped properties is because the owners give their tenants the amenities they want. The owners are willing to make their offices a dream come true for their tenants so they will stay for the long haul. Google is ready to spend billions on property in Chelsea and Hudson Square. They already own 111 Eighth Avenue and paid $2.4 billion for Chelsea Market in 2018. They also purchased the Milk Studios building and is leasing at Pier 47. Netflix is willing to spend $100 million at 888 Broadway in Noho and develop a production hub in Brooklyn.
Across the Northeast, office vacancies are falling due to user demand outpacing the supply of new construction. In New York, developers are turning to mixed-use developments and vertical construction to try to keep up with the demand for new space. The vacancy rate for the 2Q in the city was 8.3% with a net absorption of 4.8 million. There is approximately 27 million square feet of office space under construction and Hudson Yards $26 billion development is just half of that amount. Two Manhattan West, 1.9 million of square feet, is set to be completed in 2022. Also, to be completed in 2022 is 50 Hudson Yards, which will be the fourth largest commercial office tower in New York once finished. One of the most sought-after amenities is outdoor space. Most developers are now including green space, balconies, terraces, lounges and media rooms into Class A buildings, as well as, gyms and coffee bars.