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Midtown leasing thrives as Downtown dives

It was a tale of two diverging office markets - a "roaring" Midtown and a suffering Downtown - that left the October Manhattan vacancy rate at 10.5 percent, unchanged from the previous month.
After hitting a two-year low in September, vacancy rates stayed constant, according to research by Grubb & Ellis.

While Midtown leasing "roared through the month" with activity up 62 percent from the September total of 1.25 million square feet, according to CB Richard Ellis, Downtown Class A vacancy rates jumped to their highest level in 17 months.

Consolidations at Prudential/Wachovia put about one million square feet on the market in two locations, driving the vacancy rate to 14.5 percent, according to Colliers ABR.

That was the highest level since March 2003, when 15.3 percent of Downtown Class A space was vacant, Colliers reported.

Other reports said the overall vacancy rate increased, including the Colliers study, which saw vacancy for class A space rising to 10.5 percent from 10.1 percent the month before.

Brokers expect the New York market to pick up at the end of the year and tighten further in the first quarter of 2005.

Jordan Berger, an associate in the corporate services group at The Staubach Company, said rents and vacancy rates are set to move in directions that will once again make it a landlords' market.

The financial services industry, a major force in the commercial leasing market, is gearing up for prosperity, he said.

"Big financial institutions are going to be adding jobs, one, two or three years down the road," he said. "They're taking space while it's still available and terms are somewhat favorable because the market is starting to move."

Midtown

The strong Midtown activity cited by CBRE involved nearly two million square feet of leasing, a 57 percent increase from the five-year monthly average of 1.27 million square feet.

Year-to-date activity of 15.4 million square feet surpassed figures from 2000, which the report said was the last cyclical peak, when 14.8 million square feet were leased in the same 10-month period.

Colliers characterized Midtown activity differently, reporting that the Midtown Class A vacancy rates stayed steady at 9.3 percent in October, the same as the previous month.

Robert Sammons, research director at Colliers, said the arrival of 193,000 square feet of space at 1330 Avenue of the Americas after a move by Universal and another 114,000 square feet vacated by Turner Broadcasting as it moved to the Time Warner Center contributed to keeping the total vacancy rate unchanged for the month despite a pickup in activity.

Big leasing transactions included consultants McKinsey & Co. renewing 297,000 square feet at 55 East 52nd St., and the Canadian Imperial Bank of Commerce (CIBC) renewing its lease on 133,000 square feet at 425 Lexington Ave.

The Colliers report saw a rise in average rents for Midtown Class A space, to $56.88 from $55.78 the month before.

But CBRE said average asking rents for all classes of space decreased 32 cents to $49.90 a square foot.

Midtown South

The Midtown South market saw further improvement in October, with availability at 11.7 percent, down 0.5 points from the month before and at its lowest level since March 2002, when availability hit an 11.6 percent low, according to CBRE.

The CBRE report said the 571,000 square feet leased in October was a 28 percent increase from the five-year monthly average of 444,000 square feet.

According to Colliers, class A vacancy rates also dropped, hitting 7.3 percent in October, down from 7.8 percent the preceding month.

Top transactions included New York Cardiologists' 40,000 square foot renewal at 275 Seventh Ave. and Smart Design's lease of 40,000 square feet at 601 West 26th St.

The CBRE report said average asking rents continued to increase in October, by 8 cents to $32.56 per square foot.

The Colliers report agreed, saying class A average asking rents increased, from $28.86 per square foot to $30.09 per square foot.

Downtown

The Prudential/Wachovia consolidation that drove the Class A vacancy rate to 14.5 percent gave Downtown its worst numbers for that category since March 2003, with a vacancy increase of 1.3 percent from the month before, the Colliers report said.

The Prudential/Wachovia space put on the market included 606,000 square feet at One New York Plaza and around 400,000 square feet at 199 Water Street.

"More than anything, it was those really large blocks of space that hit the market last month," Sammons said.

The CBRE report also saw a jump in availability, with an increase to 15.3 percent, up 0.6 points from the month before.

Leasing remained strong, according to CBRE. The 534,000 square feet leased in October was 9 percent above the five-year monthly average of 492,000 square feet.

In big deals, Thomson Financial expanded its operations at 195 Broadway and leased an additional 92,000 square feet. The law firm White & Case renewed on 40,000 square feet at 100 William Street.

Asking rents dropped slightly, down 5 cents to $30.44 per square foot, according to CBRE.

Colliers saw asking average rents for class A space drop more significantly, to $33.35 from $35.03 the month before.

Berger said reduced Midtown inventory would send some tenants Downtown within the next few months, and that the area was poised for improvement.