Most Midtown sublease space called unmarketable

By Adam Pincus | April 08, 2009 01:26PM

The majority of office sublease space listed as available in Midtown cannot be leased at any price, said John Powers, chairman of the New York tri-state region at commercial brokerage CB Richard Ellis.

About 70 percent of the approximately 10 million square feet of sublease space available in Midtown has too few years left on the lease and/or is too large to be leased, Powers estimated at the firm’s quarterly market analysis meeting.

The 7 million square feet “is unmarketable now. Some may be marketable next year, some situations may change next year,” he said, but “not [all] the sublease space is going to go first [just] because it is priced cheaper.”

The quantity of marketable sublease space that is available is important because sublease space accounts for about 30 percent of the entire Manhattan office market and is generally priced below direct office space. Because of that, it is believed to be a major factor in downward pressure on rents.

Some industry experts said the seven million square feet of sublease space considered unmarketable was an overstatement.

“I find it hard to believe there would be that much that they would consider unleasable,” said Robert Sammons, a managing director for real estate firm Colliers ABR, but added, “You could say because of the economy right now and because there are very few tenants looking, that the majority of the [direct and sublease] space is unleasable.”

Colliers ABR released a report yesterday showing Midtown Class A office space was at its highest level in 13 years.

James Wacht, president of Sierra Realty, a management and leasing firm, said any sublease space would drive rents down.

“Frankly it does drive down rents,” he said, because potential renters see the lower sublease prices and expect direct space to compete with it.

CBRE also reported its March leasing data today, which showed another steep increase in the amount of negative absorption, a measure of the amount of space added or removed from the market each month.

That figure rose to 2.77 million square feet, with nearly all of that coming from Midtown. The month before, 700,000 square feet was returned to the market. Negative absorption for the year so far has hit 7.66 million square feet.

The average asking rent was $57.35 per square foot last month, down from $59.10 the month before, and off $13.37 per foot from March 2008, the CBRE report said.