The sharp rise in leasing activity in June was a welcome shift from the anemic figures of prior months, but early reports from last month showed that the surge has leveled off, industry experts said.
The amount of square footage leased in Manhattan rose by 50 percent — from just under 1 million square feet, to 1.47 million — in June compared with May, data from commercial firm CB Richard Ellis showed. The June leasing figure was roughly 27 percent lower than the five-year monthly average for Manhattan.
By the middle of last month, about 700,000 square feet had been reported leased, said Steven Coutts, research director and senior vice president at tenant representative firm Studley, citing CoStar data. But Coutts said he did not expect July to end with a strong showing, based on deals in the pipeline for the rest of the month.
“I would expect July to be a drop off from June,” he added.
Tenants, he noted, were holding off signing leases last month for the same reasons as in the past several months — they are trying to time the market and find the best deals.
“This market will be driven by renewals that have to be dealt with,” Coutts said.
Meanwhile, the most recent figures from CBRE showed that average Manhattan asking rents fell in June to $53.35 per square foot, from $54.63 per foot the month earlier.
The rate of availability in June rose 0.1 point, to 14.2 percent.
Peter Riguardi, president of the New York office of Jones Lang LaSalle, said last month’s leveling off still signals market strength, because one would expect the market to decline in the summer.
“I don’t see that the pace has gotten any stronger than it was in June. I think it has stayed the same,” he said. “But that in itself is encouraging, because I was concerned that in the summer months of July and August that would slow down.”
Several large renewal deals were signed in July, including 240,930 square feet by Wachtell Lipton Rosen & Katz at 51 West 52nd Street on the Avenue of the Americas, and 202,495 square feet by Showtime Networks at 1633 Broadway at 51st Street, the New York Post reported.
Although the pace of closed deals remains slow, some landlords said foot traffic is up from large companies who are in the market for space.
Roger Newman, a senior vice president at Paramount Group, a landlord with about 10 million square feet in New York City, including 1633 Broadway, said the number of large tenants has increased and “we are talking to more” of them.
David Falk, president of Newmark Knight Frank for the New York tri-state region, also said leasing velocity appeared to be headed down last month from June. However, he said, his firm has about half a dozen deals in Midtown and Midtown South for 100,000 square feet or larger that will close by the middle of this month.
Falk would not, though, hazard to guess as to what large tenants might pay in the half-vacant Worldwide Plaza at 825 Eighth Avenue, which sold last month for about $600 million.
“The market is not very mature there,” he said. “Worldwide Plaza has to compete with 47 blocks over 100,000 square feet, some on Park Avenue … and some being subsidized by large banks in the low $40s.”
Falk said he hasn’t seen the same increase in large tenants that Newman cited. He pointed out, however, that there are firms out there looking. Accounting firm Deloitte is looking for about 500,000 square feet, Katz Media Group wants about 150,000 square feet and Avon Products is in the market for approximately 200,000 square feet, he said.
Midtown
Average asking rents in Midtown fell another 2.7 percent in June, to $60.45 per square foot, from $62.16 per foot in May. They are down 30 percent from the district’s high point of $86.57 per foot one year ago, CBRE statistics showed.
Studley researcher Coutts noted that in the Plaza District, large tenants were taking advantage of low prices to sign renewals, though still at a higher price than in other areas.
Class A asking rents were down by nearly 50 percent from $125 per square foot in last year’s third quarter to $65 per square foot last quarter, Studley data showed.
“Firms are taking advantage of the pricing in the market to re-up and renew,” Coutts said.
He explained that as of July 1, renewals comprised 47 percent of citywide deals larger than 30,000 square feet. But in the Plaza District, 70 percent of the square feet leased were renewals, Coutts said.
CBRE data showed that the availability rate in Midtown rose slightly to 15.4 percent, from 15.2 percent in May, despite the higher leasing volume, as large blocks of space came on the market, such as 192,000 square feet on several floors at 800 Third Avenue.
And in another sign that Midtown landlords remain eager to make deals, the taking rent index — which tracks the accepted rent as a percentage of the asking rent — which had risen in May for the first time since last fall, fell to a new low, 76.2 percent, in June, the CBRE report said.
As recently as January 2008, the index had been above 95 percent.
Midtown South
Midtown South was the only area to show a decrease in the availability rate in June, falling from 14.4 percent to 14.1 percent. That was due, in part, to the withdrawal of space from the market, CBRE reported.
The market was also home to Manhattan’s largest renewal lease in June. Bonnier, a publishing company, took 98,721 square feet at 2 Park Avenue, CBRE’s data showed.
Despite the increase in activity, average asking rents in Midtown South fell to $44.79 per square foot in June, down from $46.22 per square foot the month earlier, CBRE numbers showed.
Downtown
Average asking rents in June fell slightly to $41.91 per square foot, down from $42.46 per foot the month earlier, and the availability rate increased to 11.1 percent, from 10.8 percent in May, the CBRE data showed.
Rental activity Downtown was the slowest of the three markets. Only 130,000 square feet was leased, 69 percent off the five-year monthly average of 420,000, CBRE numbers said.
Most of the activity Downtown was in the Financial District, where just over 120,000 square feet of space was leased in June. In the City Hall submarket, about 8,000 square feet was leased, while in the World Financial Center area, no leases were signed, CBRE reported.
