Manhattan office tenants leased up space at the fastest clip in five years during the first quarter of 2010 as they tried to lock in prices that many believed were at or near their lows in the current economic downturn, according to a report covering the quarter from commercial tenant advisory firm Studley.
But overall asking rents declined and the availability rate rose sharply Downtown, the report says.
There was 8.9 million square feet of office space leased in the first quarter in Manhattan, the highest volume of leasing since the first quarter of 2005, when 9.8 million square feet was leased in the borough, the Studley report, set to be released later this month, shows.
The volume was up from the fourth quarter when 8 million square feet were leased and was ahead of the quarterly average of 7.2 million square feet, Studley reported.
The leasing volume figures reported by Studley are higher than those seen in other market reports because the firm includes all space leased in its figures — including renewals — while other firms such as CB Richard Ellis and Cushman & Wakefield count only newly-leased space.
The spike in activity was driven by tenants renewing their leases early thereby pumping up leasing activity and not by new demand coming into the market, the company senior vice president of research, Steven Coutts, said. Many tenants are still reducing space as they ink new deals and average asking rents are falling, he cautioned.
“[The increase in leasing volume] is saying that we are close to the bottom if not at the bottom. But the question is how long will it be [there],” Coutts said. “Will it be a quick recovery or will it be bouncing along the bottom for four to eight quarters?”
The industry is closely watching deal velocity, pricing and availability rates in order to identify the start of a recovery, but many point to job growth, which remains anemic, as the key to firming up the Manhattan office market.
While velocity rose overall in the first quarter, overall asking rents declined from the fourth quarter of 2009.
Manhattan asking rents fell by 2.7 percent to $49.14 per square foot. Midtown Class A rents were down in the first quarter by $0.17 per foot to $63.40 per foot. Since the$101.17 peak in the first quarter of 2008, Class A asking rents have fallen 37 percent, Studley figures show.
Downtown the decline was sharper, with Class A asking rents dipping $2.01 per foot to $44.21 per square foot, and down 30 percent from the first quarter of 2008 when they reached $63.86 per square foot.
The availability rate for Class A properties declined in Midtown by 1 point to 13.7 percent, while it rose sharply Downtown by 3.2 points to 10.8 percent, its highest level since mid-2006, the report shows.