MIDTOWN — Office rents are poised to rise roughly 17 percent by the end of next year, as jobs are being added in the city while office space remains limited, according to experts at Cushman & Wakefield.
The average asking rent for Manhattan's commercial space reached $58.90 per square foot at the end of March — an increase of 7.6 percent from the year before — with a vacancy rate at 9.1 percent, according to Cushman's first-quarter report released Tuesday.
But as jobs are growing, the vacancy rate is expected to dip to 8.5 percent or below, according to Ken McCarthy, senior economist at Cushman's, who predicted that rents will rise to $68 a square foot by the end of 2013.
In the past, when the city's vacancy rates fell below 9 percent, Manhattan saw big rent spikes over the next year: in 1998, rents jumped 20 percent, and in 2005 they jumped 25 percent, McCarthy noted.
"While we are reluctant to forecast a 20 percent-plus increase in asking rents," McCarthy wrote, "it is highly likely that in an economic environment of rising employment vacancy rates will decline and asking rents will increase."
The city added more than 28,000 jobs in the first two months of this year and is on pace to add a total of 93,000 jobs for the year, Cushman experts said, citing numbers from the U.S. Bureau of Labor Statistics. Another 77,000 jobs are projected to be added next year.
Since the city's payrolls bottomed in 2009, New York has added more than 168,000 jobs, surpassing the number of jobs lost during the recession. The only cities that recovered more jobs than New York were Washington, D.C., and Houston, a Cushman report noted.
Much of the growth is coming from sectors other than finance, such as private education, healthcare, technology and retail and hospitality as a record 50 million tourists came to New York last year.
But once the financial sector returns — as it is expected to do, along with the ancillary legal and accounting services that usually rebound with it — it may find a tighter office market.
"It's a sleeping giant," Joseph Harbert, Cushman's COO for the New York Metro Region, said of the office market.
"Expect the second half of the year to be stronger," Harbert said. Even as the vacancy rate remained flat, Manhattan's asking rents increased over each of its submarkets, he said.
Midtown South — the area south of 32nd Street and north of Canal Street, which is now home to such companies as Google — saw a 5.6 increase in rent over the year, to $48.45 per square foot, with a vacancy rate of 5.9 percent — the tightest market of all central business districts in the nation, Harbert noted.
Within that area, the hip Flatiron district known as "Silicon Alley," which has been a hub for media and technology firms, has a vacancy rate of 4.6 percent.
As information and media firms crowd this area, many of them are being forced to look elsewhere, like Downtown, where these types of companies represented 42 percent of the square footage leased so far this year, Harbert said.
"Everyone wants to be in Midtown South," Harbert said. "They can't find the space in Midtown South, so they're going Downtown."