The Real Deal New York

The commercial market’s rays of sunshine

Office market still struggling, but some positive signs emerge of late

July 01, 2010 07:00AM
By Adam Pincus

In
some welcome news, the first half of the year saw Manhattan leasing
activity far above the same period in 2009, driving down the amount of
space available on the market overall.

“Not many decisions were being made by most businesses last year,
but fast-forward a year, and here we are. There is a lot of activity in
the marketplace, especially in Midtown,” said Greg Taubin, senior
managing director at Midtown-based tenant advisory firm Studley.

By the end of May, there had been 9.4 million square feet of new
leasing activity in Manhattan, creating a positive net absorption of
610,000 square feet for the year, according to the most recent
statistics available from CB Richard Ellis.

Last year, by the end of May, only 4.4 million square feet of new space had been leased, the firm reported.

But insiders expect the high volume seen so far this year to taper off slightly in the coming months.

At the start of the year, “there was a flurry with people thinking,
‘We are at the bottom of the market, I better lock this in,’ but it has
probably slowed down some,” Lisa Kiell, managing director at Jones Lang
LaSalle, said. Then she added, “But it is also summer” — a
traditionally slower period.

Driving the current activity is a large number of active tenants in the market, insiders said.

According to a researcher at a national commercial services firm,
as of late last month there were 51 tenants in the market on the hunt
for more than 100,000 square feet. Among those were nine looking for
more than 300,000 square feet, the source said, including accounting
firm Deloitte and law firm Milbank, Tweed, Hadley & McCloy.

The researcher asked not to be identified because the figures are proprietary statistics.

Midtown

Midtown was the first market hit by the downturn, as financial and
other firms shed millions of square feet of Class A space in 2008 and
last year. But one of the hallmarks of the recent turnaround is renewed
demand for such high-end space, although the demand is not even, a
recent study shows.

A report by Studley provided to The Real Deal, and looking
at the availability rates in Manhattan office buildings by floor,
reveals that tenants are leasing up space on different floors at very
different rates.

For example, the availability rate in Class A buildings in the
Plaza District for the most-prized spaces above the 40th floor was just
over 4 percent in May, while the rate for space in the 11th to 20th
floors was five times higher, above 21 percent.

One high-floor space just outside the Plaza District, not mentioned
in the Studley report, was the entire 8,600-square-foot top floor of
the 47-story tower at 599 Lexington Avenue, listed in late June by CB
Richard Ellis, according to the CoStar Group. The 1 million-square-foot Class A tower is located between 52nd and 53rd streets on the East Side.

The availability rate for Midtown overall was 14 percent in May.

Kiell, who negotiated a deal at the Class A building 345 Park
Avenue that was concluded in May, said landlords appear to be offering
fewer incentives.

“If we struck a deal today, it would probably have less in
concessions and a bit more in rent. In my opinion we have bottomed
out,” she said.

New Midtown leasing in May beat the five-year average by 60
percent, reaching 1.9 million square feet; however, average asking
rents declined by 79 cents per square foot to $54.63 per square foot,
CBRE data showed.

Midtown South

One of the largest leases in Midtown South disclosed last month was
the Culinary Academy’s 32,250-square-foot renewal and expansion in
Chelsea, brokered by Colliers International, at 154 West 14th Street, a
building owned by Abner Properties.

Renewals and expansions have been the bread and butter of the
Manhattan market as it recovers from the dearth of leasing. In May,
three of the five largest deals in the market were renewal and
expansions, CBRE data showed.

John Silverman, general counsel for Abner Properties, said the
firm had seen an uptick in tours. According to CoStar, most of the
firm’s properties are in Midtown South.

“We have seen a tremendous amount of walk-throughs and deals come to fruition,” Silverman said.

Just as in Midtown, Midtown South saw a large uptick in leasing in
May, with 600,000 square feet leased, CBRE statistics revealed, more
than twice the five-year average. At the same time, average asking
rents rose by 21 cents per foot to $41.70 per square foot, CBRE showed.

Downtown

Despite the lease Deloitte is negotiating with Brookfield
Properties for 400,000 to 450,000 square feet at 4 World Financial
Center, recent news has been gloomy for Downtown. Prices continued to
fall, brokers said, and Studley noted in its May report that only 7
percent of the Manhattan relocation leases larger than 20,000 square
feet were in the Downtown market.

In Midtown, by mid-May, 2.8 million square feet of leases for
spaces greater than 20,000 square feet were signed, compared with
750,000 square feet of such deals signed in Midtown South and only
275,000 square feet Downtown, the report showed.

Putting additional downward pressure on the market was news, first
reported by Real Estate Weekly, that Mort Zuckerman’s Daily News was
working on a deal to take about 100,000 square feet at 4 New York
Plaza, a building purchased by Harbor Group International for about
$100 per square foot.

The building, constructed for back-office use, was purchased for
below its replacement cost, James Frederick, executive managing
director at commercial firm Cassidy Turley, said. Because of that, the
landlord can price space lower than competitors can.

“It definitely adds (downward) pressure to the market,” Frederick said.

The rent at 4 New York Plaza will reportedly be approximately $25
per square foot in the 1.1 million-square-foot-tower, far below the
average asking rent in the market, about $38.43 per square foot in May,
CBRE figures show.

Leasing activity in May was slow Downtown, with just 170,000 square
feet of new activity, down from 350,000 in April, CBRE figures show.
The firm reported in June that it expected the availability rate
Downtown, now at 13.4 percent, to rise above rates in Midtown and
Midtown South later this summer.

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