The Real Deal New York

Despite leasing malaise, market shows signs of life

While deals are flat, brokers say space showings and phone calls are on the rise

March 01, 2012
By Adam Pincus

Very few large office leasing deals were signed in Manhattan last month, providing more evidence the market has hit the doldrums.

In fact, the largest deal recorded by data tracking firm CoStar Group was a lease renewal for just under 57,000 square feet near Herald Square.

The slow activity in 2012’s first quarter does not come as a surprise. Insiders like Bruce Mosler, chairman of global brokerage at Cushman & Wakefield, predicted at the end of 2011 that the New Year would start sluggishly.

But some real estate professionals are pointing to other metrics that suggest a turnaround could be underway in the coming months.

Robert Billingsley, vice chairman of commercial firm Cassidy Turley, acknowledged that large companies have been reluctant to sign deals lately, but he remained optimistic about office leasing activity for the rest of the year.

“We thought it would pick up more in February than it has. It’s like the consumer sentiment is going along at 50-to-60 miles per hour, but the real tangible things you see [like lease deals] are going along at 40 miles per hour,” Billingsley said. “[But] our marketing projections and our business plan is that things are going to get better.”

Market statistics reflected that static sentiment.

The average asking rent for Manhattan remained nearly flat in February, falling just a penny to $52.05 per square foot compared with January. Meanwhile, the availability rate (measuring space vacant now or space that will be available over the next 12 months) rose by 0.1 points last month to 10.4 percent.

Marc Holliday, CEO of the city’s largest office landlord, SL Green Realty, said on the company’s earnings call Jan. 31 that activity at his firm was solid, even as “market activity may be slowing somewhat as reported by several New York brokers.” In addition, he expected private-sector employment to grow by 24,000 this year, further boosting the market.

Robert Sammons, vice president for research at Cassidy Turley, said it was too soon to call the overall flat numbers in February the start of a downward trend.

“My thinking is there will be some ebb and flow for a few months as some additional availability hits from financial services firms, especially in Midtown,” he said.


Even as the activity of office leasing deals remained slow in Midtown, some brokers reported an increase in interest among tenants, noting that leading indicators such as phone calls and space showings were up.

Robert Kaplan, director of leasing at landlord Hidrock Realty, said last month that “activity picked up in terms of offers and showings.”

Last month, he put a pair of spaces on the market in a 12-story loft-style building at 35 West 36th Street between Fifth and Sixth avenues, asking $35 per square foot and $36 per square foot. In a tacit acknowledgment of the quiet period, Hidrock is offering brokers prizes such as a dinner and a Broadway show for two, or golf lessons, through quarterly raffles to draw activity to all of its properties.

For the overall Midtown market, the average asking rent dipped last month by $0.07 per foot to $59.23 per square foot compared to January. The availability rate rose by 0.2 points to 11.1 percent during the same period, Cassidy Turley statistics showed.

But in another positive sign, Billingsley said he’s seeing an increase in interest from foreign companies looking to sign new leases or expand in Midtown.

“A trend we are seeing in our buildings is there are a lot of tenants with headquarters outside the U.S. that are placing bets on the U.S. economy and are doing things with their occupancy plans here,” he said.

Midtown South

Midtown South has generally fared better than Midtown or Downtown with a tighter leasing market recently, and last month was no different.

While the other markets saw increases in their availability rate, Midtown South’s overall availability rate fell again — which was welcome news for landlords.

As a sign of the tight market, Thomas Campenni, president of the firm bearing his name, represented the office building 95 University Place in a 20,000-square-feet lease for ninth-floor space formerly occupied by St. Vincent’s Medical Center. The floor was leased late last month to a technology firm, for just below an asking rent of $42.50, he said.

“I rented that in six days. We had multiple offers. It all depends on where you are and what is going on. I would not say things have gotten any worse or that there is even a pause,” he said.

In Midtown South, the average asking rent declined by a penny to $43.12 per square foot in February, while the availability rate fell by 0.3 points to 8.8 percent, Cassidy Turley figures showed.


The top office landlord Downtown expects activity to pick up over the year. Ric Clark, CEO of Brookfield Office Properties, said during the company’s fourth-quarter earnings call last month that “I don’t think the market is quite as slow as the press has been reporting, at least not from the level of our discussions.”

Mitch Rudin, the president and CEO of U.S. Commercial Operations for Brookfield, said that last year major tenants with leases expiring a few years down the line stepped back from making large commitments. But he anticipated they would re-engage now.

“Some of the strategic planning, and some things that we might have seen in October and November, those are things that we’ve now been seeing in January and February and have scheduled into March.”

Brookfield Office, which owns the World Financial Center, has about 3.1 million square feet available for lease in space that has leases expiring in 2013.

“We are in discussions with [potential tenants for] about half of the space that we have here,” Clark said.

Asking rents Downtown rose by four cents to $38.29 per square foot in February, and at the same time the availability rate rose by 0.3 points to 10.4 percent, according to Cassidy Turley stats.