The Real Deal New York

A double dip? Not in office leasing

Manhattan office market tightens, though asking rents stay weak

September 01, 2010 07:00AM
By Adam Pincus

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The grim national housing statistics delivered last month, which renewed fears of a second sharp decline in the overall economy, were not reflected in the Manhattan commercial leasing market — which continued to improve modestly overall.

“We are not seeing any double dip in office leasing,” said Jeffrey Peck, senior managing director at commercial advisory firm Studley. However, he noted, “we are also not seeing any tremendous strength.”

Last month, brokers said tenants continued to actively poke around for new space. The blockbuster example in Midtown was a clothing supply firm reportedly looking to lease 500,000 square feet in the Empire State Building. A pending deal could not come at a better time for the iconic tower, which was dealt a blow last month when the City Council approved plans for Vornado Realty Trust to build a nearby skyscraper. The owner of the Empire State Building, Anthony Malkin, was aggressively arguing that the proposed tower, 15 Penn Plaza, will block the views from his building (see “Rivalries rev up”).

Meanwhile, in the rest of the commercial market, Midtown South showed strength. When compared to other Manhattan districts, leasing volume there showed the greatest improvement over 2009.

Even Downtown had some modestly good news. Its availability rate, which measures space that is vacant or that will be available within 12 months, fell in July by the most it has in nearly three years, figures from commercial firm CB Richard Ellis showed.

The availability rate declined for Manhattan overall as well, falling by .3 points to 13.7 percent, figures from CBRE revealed. However, the positive signals were tempered by a continued weakness in asking rents, which dipped modestly in Manhattan overall to $47.57 per square foot in July, down 4 cents per foot from a month earlier.

Midtown

The largest new tenant that came to light in the Manhattan market last month was Li & Fung, the Hong Kong-based clothing company that supplies retail giants such as Target and Walmart. Crain’s reported that the firm was considering a 500,000-square-foot lease in the Empire State Building, which would be the largest lease inked so far this year in the city.

There were also several smaller tenants on the market, sources said, including two law firms. One firm, Cooley Godward Kronish, now at 1114 Sixth Avenue, is being represented in its search by Newmark Knight Frank for 100,000 square feet. And Wilson Sonsini Goodrich & Rosati, now at 1301 Sixth Avenue, is hunting for about 50,000 square feet.

Studley’s Peck said tenants are more willing to make long-term commitments than they were a year ago, but these days they are being more penny-pinching with their space.

“They are doing more with less,” he said, adding that some companies are trying to limit their footprint by arranging employees at workstations on long common tables, each with their own chair.

“[Tenants] are becoming more efficient with their utilization of space,” he said, noting the system is called “bench seating.”

Peck also recently brought a new tenant into the market beginning last month. He would not identify the client except to say that it is a financial firm in Midtown that is seeking between 75,000 and 100,000 square feet.

Midtown South

Midtown South, often thought of as the lower-quality stepchild of Midtown, has shown the most resiliency so far this year in terms of new leasing volume.

It has bested Midtown, which has seen its leasing volume almost double in 2010 compared with the year earlier, and far outpaced Downtown, where leasing volume has been flat.

In Midtown South, the square footage of new leases signed through July rose by 192 percent to almost 2.7 million square feet from just over 915,000 square feet during the same period in 2009, the most recent statistics from Cushman & Wakefield show.

At the same time, Downtown rose 10 percent to 2.1 million square feet through July in 2010, and Midtown rose 82 percent to 10.4 million square feet in the same period.

Sam Stein, director of leasing at landlord Justin Management, which owns and manages buildings in Midtown South and the Garment District, said he is leasing more space now than he was last year.

“It feels like a year ago we were getting space back and it was taking a while to lease,” he said. “Now we are leasing it fast. We seem to be making progress in terms of the time it takes to close a deal, but we still have spaces to rent.”

Christel Engel, a senior managing director at commercial firm Colliers International, said part of the draw to Midtown South is the loft office space, which is clustered in Soho and the Meatpacking District.

In fact, late last month she signed a new tenant in a rehabilitated, loftlike top floor with just over 8,000 square feet at 129 West 29th Street, near Penn Station. The firm will relocate from the Meatpacking District.

She and Michael Thomas, also of Colliers, represented the landlord, Thor Equities, while the tenant, Bootstrap Software, was represented by Tricia Rosen of Rosen & Jacobs Realty. The asking rent was $38 per square foot.

The loft spaces in Midtown South have garnered such interest that Midtown buildings, which have a reputation for being more corporate, are trying to piggyback on the allure and use it in advertisements to bring in clients. Engel and Thomas are marketing space at 321 West 44th Street, where the landlord used wood flooring as a finish, as is common in Soho lofts. The advertising tag reads, “Soho moves to Midtown.”

Downtown

Approaching the ninth anniversary of the Sept. 11 attacks, the Downtown market received nuggets of positive news. The Port Authority of New York and New Jersey approved the funding structure for World Trade Center towers 2 and 3.

“The progress on the site is clear: Two of the towers are rising, the Memorial is on track to open next year on the tenth anniversary, the transit hub is underway, and every day thousands of construction workers descend on the site to continue rebuilding it,” Mayor Bloomberg said in a statement about the trade center deal.

Meanwhile, the availability rate Downtown experienced its greatest one-month decline in more than three years. It dropped by .7 points in July to 14.3 percent from the month earlier, the largest dip in the availability rate since April 2007, a CBRE report said.

Deals such as the nearly 172,000-square-foot lease by HealthFirst at 100 Church Street pushed the rate down. However, the number remained far above the 11 percent level it was at a year earlier, CBRE showed.

Not all the activity Downtown was near the new construction in Lower Manhattan. A sixth-floor space in a 1915 building in Tribeca, at 6 Harrison Street at Hudson Street, came on the market last month asking $51 per square foot.

Amy Murawski, a broker with the Dana Commercial Group at Prudential Douglas Elliman who is representing the 5,877-square-foot space, said potential clients are interested because of the “Downtown vibe.”

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