The Real Deal New York

Office leasing lows

Activity drops 30 percent, but pros have high hopes for 2013

January 01, 2013
By Adam Pincus

Marc Holliday, CEO of SL Green Realty

Despite a small flurry of deals last month, 2012 was one of the slowest years in recent memory for office leasing.

Total leasing volume for 2012 fell to roughly 26.8 million square feet, a 33 percent drop from 40.7 million in 2011, preliminary figures from commercial firm Cassidy Turley showed. That drop-off, experts say, was due largely to big companies’ concerns about committing to space during these uncertain political and economic times (see related story: The office slump).

But this year may be a different story.

Industry insiders said they expect a turnaround in 2013, if for no other reason than pent-up demand and the expiration of current leases.

“There is no way … that it stays as stagnant as it’s been this year,” said David Berkey, executive vice president of leasing for the real estate firm L&L Holding Company.

With the bogeyman of the fiscal cliff expected to be resolved in the coming weeks — no deal had been reached by press time — businesses will be able to make longer-term decisions, brokers said.

And a handful of large deals were near completion as of late December. During a presentation to investors last month, Marc Holliday, CEO of SL Green Realty, Manhattan’s largest office landlord, referenced several of those deals.

SL Green noted that Jefferies & Company, a global financial services firm, is close to inking a 450,000-square-foot renewal deal at 520 Madison Avenue, where it is currently located. The company is represented by Dale Schlather, an executive vice president at Cushman & Wakefield.

Other large firms closing in on deals are cosmetics giant L’Oreal, which is expected to lease about 400,000 square feet at the Related Companies’ Hudson Yards development on the Far West Side, and Capital One, which is eyeing 225,000 square feet at 1221 Sixth Avenue.

“If these deals get done in the first quarter — we think they might; most will or should — it is going to be a hell of a start to 2013,” Holliday said at the meeting.

He predicted that employment growth in the city’s office sector, as well as healthy profits from financial firms, should boost leasing.

Overall asking rents for Manhattan rose to $57.43 per square foot in December, up from $56.84 the prior month, according to data from Cassidy Turley. Manhattan’s availability rate, which measures space that is currently vacant or will be available in the next six months, tightened slightly from the previous month by 0.1 point to 10.2 percent. That’s an improvement from 10.9 percent in December of 2011.

Jefferies & Company, a global financial services firm, is close to inking a 450,000-square-foot renewal deal at 520 Madison Avenue.

Midtown

Tenants inked several large deals last month in Midtown, ending a slow year with a slight uptick in activity.

In Manhattan’s largest lease of the month, law firm Kaye Scholer signed a deal to take 250,000 square feet at Boston Properties’ under-construction office tower at 250 West 55th Street. The law firm, based in New York, will occupy floors three through 12 in the 20-year lease.

Kaye Scholer will move from L&L Holdings’ 425 Park Avenue.

Another large deal executed last month was Microsoft’s long-anticipated move from 1290 Sixth Avenue to 11 Times Square, the 40-story tower at Eighth Avenue and 42nd Street. At one point, the Redmond, Wash.–based technology firm was expected to take more than 400,000 square feet at the building, but it ultimately signed a deal for just 230,000 square feet.

Asking rents in Midtown rose $0.71 per square foot to $64.92 per foot in December, while the availability rate dropped 0.2 points from November to 11.1 percent, Cassidy Turley data showed.

Midtown South

Midtown South was the only Manhattan market to see an increase in availability last month. The area’s availability rose 0.1 point to 7.9 percent. The average asking rent, meanwhile, increased by $0.34 per square foot to $49.69 per square foot, according to Cassidy Turley.

The increase in availability is due in part to two large blocks of space hitting the market.

Vornado Realty Trust listed a 236,946-square-foot block of space at 770 Broadway. The current tenant, Nielsen, is moving to 85 Broad Street in Lower Manhattan, and had listed the space on floors seven, eight and 15 as a sublease over the summer with CBRE Group. There is no asking rent, but the Commercial Observer reported in June that Vornado was asking as much as $70 per foot in the building.

The other large block is 57,904 square feet on the 14th floor at 11 Madison Avenue, the 2.2 million-square-foot office building on Madison Square Park. The space is being listed by the owners, the Sapir Organization and the CIM Group, and handled by CBRE.

The Midtown South market was the darling of Manhattan office leasing last year, and insiders expect that to continue.

“Midtown South will lead the [leasing] market in the city due to the lack of space and the demand that is still there,” said Greg Taubin, executive managing director at tenant-focused commercial firm Studley.

Downtown

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The Downtown market was, of course, hit hard by Hurricane Sandy, but many buildings that closed after the storm were back online by the end of last month.

The 368,900-square-foot office tower 125 Maiden Lane, for example, added space to the market after reopening the first week of December.

The office tower, a commercial condominium building managed by development firm Time Equities, listed a partial space on the third floor for lease with an asking rent of $35 per square foot, and a condo space for sale on the 16th floor for $4.2 million.

The asking rent for the newly listed space was about the same as that of space listed in the area before Sandy. The stability in rents is helped by the fact that in the Downtown market, “there seems to be a lack of space at the moment,” said Richard Recny, director of asset management for Time Equities.

Recny declined to comment on how the storm impacted leasing terms, but said: “We are being cooperative with [prospective tenants] in terms of their space search, and we are doing right by them — and us — in the business terms.”

Despite the storm, asking rents rose slightly in December to $40.08 per square foot, while the availability rate dropped by 0.4 points to 10 percent, Cassidy Turley said.

Yet challenges remain in Lower Manhattan, where at least a half-dozen large buildings, such as 4 New York Plaza, were expected to remain closed at the start of the New Year, commercial firm Jones Lang LaSalle said. And leasing in the area is hampered by the continued outage of Verizon’s phone and data systems, which are not slated to be fully restored until the second quarter of 2013.

While tenants can sign up with competing voice and data services, some companies need Verizon in order to communicate with other offices around the country that use the same system, insiders said.

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