Lease valuations were unpredictable and deals were few last month while brokers cautioned tenants to hold off on signing any unnecessary rental contracts as prices continued to drop, real estate experts said.
“If the company does not have to do something, my advice is to sit on the sidelines and be opportunistic. If I was a tenant I would really be much more upbeat and positive because there are many more alternatives,” said Glenn Markman, an executive director at commercial brokerage firm Cushman & Wakefield.
In October, he estimated rents were down sharply compared to prior months. For September, according to the latest hard data available, real estate services firm CB Richard Ellis showed average asking rents fell by just $0.84 from the month earlier.
“It feels to me prices are off 20 percent from where they were only a few months ago,” Markman said.
Brokers are expecting continuing weakness following the record declines in the stock market and mounting layoffs nationally and in the city. The layoffs have also hit brokerage firms such as CBRE, Cushman & Wakefield and Massey Knakal Realty Services, which all confirmed cuts in October.
Robert Ageloff, a managing director at brokerage Jones Lang LaSalle, said anxiety about the economy fueled a related
uncertainty in rent valuation. He saw
wide differences between what landlords were offering and prospective tenants were willing to pay, creating a chaotic and inefficient marketplace.
“Just the fact that I and most brokers can’t quantify a rule of thumb percent between asking and taking rents showed there is inefficiency in the market, which is redefining itself around each new transaction,” he said. Six months ago, the spread between asking and taking rents was more predictable, he said.
“We are advising clients to be prepared to say no. If they enter the market, they need to understand there isn’t a bottom now,” Ageloff said. “The market is very undefined. We are all pioneering new market territory each day.”
Robert Sammons, managing director of research at Colliers ABR, said landlords were more accommodating with tenants, allowing shorter leases with terms between three and five years, compared to earlier this year, when building owners would have sought 10 years or more.
“The landlord is much more eager to placate the tenant,” he said. “Six months ago, if a tenant had a lease expire, the landlord would have been more aggressive about [putting the tenant out] or renewing at a higher rate. Now, the landlord is much more willing to do a three- to five-year deal.”
He said he had heard of at least three such short-term leases for more than 50,000 square feet each that were in negotiations in the Plaza District and Lower Manhattan.
Midtown
About 1.14 million square feet of direct and sublease space returned to the Class A market in Midtown in September, accounting for most of the 1.8 million-square-foot increase in available space in all classes boroughwide, Colliers ABR reported.
Sammons said much of that space was from five buildings, including 237 Park Avenue, where Bear Stearns had been a tenant, but not all the space came from financial services firms.
“It was not one particular type of tenant. Tenants were moving around. There were financial tenants and others as well,” he said.
The market saw prices fall and vacancies increase in September. Average asking rents in Midtown fell by the largest number since April 2002, down $1.34 to $84.74 per square foot, while the spread between direct and sublease rents rose to its highest level in five months, to $17.41, CBRE reported.
Leasing activity was at 940,000 square feet, 34 percent off September’s five-year average of 1.42 million, contributing to the 0.2 point rise in the vacancy rate over the prior month to what remains a relatively low rate of 5.4 percent, CBRE data showed.
Midtown South
New available space and returning sublease space pushed up the vacancy rate in Midtown South by 0.8 points to 7.1 percent, the highest increase among the three Manhattan districts in September, but rents fell modestly, according to CBRE data.
Despite the large vacancy increase, average asking rents in the district fell by just $0.51 to $52.86 per square foot, the data showed. The largest block of space hitting the market was a sublease by Grey Healthcare Group, which was offering 56,000 square feet at 114 Fifth Avenue at 17th Street.
Downtown
The Downtown market was the only one to show an increase in rent prices in September, which were up a slight $0.18 to $50.35, while vacancy remained flat, rising just 0.1 point to 7.4 percent compared to the month earlier, CBRE reported.
Vacancies remained low in part because so little space was returned to the market in September. There were just four blocks larger than 10,000 square feet returned to the market that month, while the largest was only 17,000 square feet, CBRE said.
But activity remained anemic, with just 160,000 square feet leased that month, 64 percent off the five-year monthly average of 450,000 square feet, CBRE data showed.
