While Midtown and Midtown South continued to steadily turn the corner, Downtown struggled to produce sustained activity in April, according to a new office market report by CB Richard Ellis.
A report by Colliers ABR saw a different situation, finding Midtown somewhat quiet in April and the Downtown market much improved from March.
Overall, the Colliers report found the Manhattan class A vacancy rate holding steady at 10.6 percent in April, compared to the month before.
While leasing was not overly impressive in April, the Colliers report said more tenants in the market wanted to make deals. Financial service firms, which cut back severely as the downturn began in early 2001 and have remained dormant ever since, have finally jumped back into the fray.
Hiring has picked up among the major companies, and appears to be strong across several divisions, from brokerage to trading. The official numbers, though, do not yet reflect the increase in employment reported by the firms themselves, the report said.
Midtown started the second quarter on decidedly solid footing, with brisk leasing velocity fueled by mid-size transactions, strong positive net absorption, tighter availability and stable asking rents – all indicators that this market continues to slowly and steadily recover, said the CBRE report.
With 1.28 million square feet of leasing activity, availability continued to tighten in April, dropping 0.1 point to 12.5 percent – the fifth straight monthly decline since its peak of 13.6 percent in November.
With the addition of 230,000 square feet of positive net absorption in April, Midtown’s year-to-date absorption totaled 1.62 million square feet – an auspicious reversal from the negative 2.48 million square feet of absorption registered during the same period last year, CBRE said.
The month’s largest new leases in Midtown included Robeco’s 103,000-square-foot lease at 909 Third Avenue, Google.com’s 57,000-square-foot expansion at 1440 Broadway and New Plan Realty Trust’s 54,000-square-foot lease at 420 Lexington Avenue, the report said.
The Colliers report saw a less rosy picture in Midtown in April, finding that the class A vacancy rate climbed – though only incrementally – to 10.2 percent up from 10.1 percent the month before.
Class A average asking rents continued to climb, however, closing the month at $55.02 per square foot, up 1.8 percent from $54.05 per square foot the month before. The CBRE report also found average asking rents increased, by an additional $0.15 in April, ending the month at $50.68 per square foot.
Although April was a lackluster month in terms of leasing, Midtown South remained on its steady course of recovery, with stable availability and pricing and absorption firmly in positive territory for the year, the CBRE report said.
April was Midtown South’s slowest month of leasing this year, with 264,000 square feet leased, lagging March’s 496,000 square feet by 47 percent. Availability was flat in April at 12.4 percent.
The largest transaction in April was a renewal by Forest Electric for 53,000 square feet at 2 Penn Plaza. The two largest new leases were Phillips Group’s 45,000-square-foot sublease from Reed Elsevier at 360 Park Avenue South and Armani A/X’s 40,000-square-foot lease at 111 Eighth Avenue.
With no major additions of space, Midtown South nearly broke even in terms of net absorption, crossing into negative territory by 11,000 square feet.
For the year to date, absorption remained positive at 92,000 square feet.
Average asking rents increased $0.11 to $32.61 per square foot for direct space, the CBRE report said.
The Colliers report did not include data on Midtown South.
Downtown struggled to produce leasing activity in April, the CBRE report said.
For the month, leasing totaled a mere 186,000 square feet, just 37 percent of the five-year monthly average of 504,000 square feet.
Only two transactions exceeded 10,000 square feet in April, both in 1 Battery Park Plaza: Liberty Mutual Insurance’s 51,000-square-foot lease, and Mitchell & Titus’ 26,000-square-foot renewal and expansion.
However, there was positive net absorption of 69,000 square feet for the month, largely due to the absence of major additions to supply and the withdrawal of 111,000 square feet of space from the market, the report said. Availability tightened by 0.1 point to 15.3 percent in April.
Year to date, leasing activity is improved compared to last year, with 1.80 million square feet of leasing activity surpassing the 1.61 million square feet recorded during the same period last year.
The Colliers report found the Downtown market considerably improved in April compared to the month before, with the class A vacancy rate closing at 12.9 percent, down from 13.4 in March.
The highlight of April was the sale of 140 Broadway to German group DIFA for $380 per square foot, the report said, adding that it was one of the highest prices paid for a Downtown building “in quite some time,” even surpassing the $372 per square foot figure paid by Deutsche Bank for 60 Wall Street prior to Sept. 11.
Rents headed in the wrong direction in April, however, ending the month down slightly at $33.70 per square foot from $33.89 per square foot the month before, the Colliers report said.
The CBRE report also found that average asking rents Downtown continued their slide, decreasing by $0.20 in April to $31.15 per square foot.
Jobs and Construction
Jobs and new office construction will certainly affect the vacancy rate in Manhattan going forward, and there may be good news on both fronts.
Through April 2004, U.S. job growth has been strong across most sectors, the Colliers report said. For New York City, for the first three months of 2004 (the latest data available), there were 23,800 private sector jobs created.
While in financial services there was a job loss of 1,200 positions thus far this year, professional and business services (legal, advertising, management consulting, temporary help and the like) gained 8,300 jobs while information services (telecommunications and periodical publishers) added 7,300 jobs in the first quarter of 2004.
Between residential conversions in Lower Manhattan and few spec office building projects, office supply doesn’t look likely to increase quickly. A New York Building Congress Construction Outlook for 2003 to 2006 forecasts that construction spending for the upcoming years will experience a 10 percent drop before rebounding.
Richard T. Anderson, president of the New York Building Congress, said that non-residential construction is the big question mark going forward, and is expected to experience the steepest drop. Infrastructure will be the greatest source of spending, fueled by federal funds for Lower Manhattan, he said.