The volume of square feet leased in Manhattan fell for the first time since the beginning of 2009, as tenants pulled back from historically high levels of deal making, yet the amount in the third quarter remained above average, a new report from commercial firm Studley shows.
Large deals such as the renewal by advertising group BBDO Worldwide at 1285 Sixth Avenue and the new lease by German financial services company Allianz Global Investors at 1633 Broadway kept the activity relatively strong.
Yet total leasing, including both relocations and renewals, totaled 8 million square feet, a 16 percent drop from the 9.6 million square feet in the second quarter of 2010, Studley reported. That was the first decline for Manhattan in a year and a half.
“The last quarter-over-quarter decline was in the first quarter of 2009,” said Steven Coutts, senior vice president of national research at Studley. “It had been climbing ever since up to this quarter. But it still falls above the historical average of 7.3 million square feet.”
The availability rate for all of Manhattan, which measures space that is available now or within 12 months, declined by .6 points to 12.1 percent in the third quarter from the prior three-month period. It was down by 1.1 points, from the third quarter of 2009 when it was 13.2 percent. At the same time, asking rents fell by 68 cents per square foot to $46.61 per foot in the third quarter, and dropped $4.37 per foot from $50.98 per foot one year ago, Studley reported.
Despite the decline in the availability rate, there were potential clouds on the horizon for landlords, who have been somewhat insulated by the sublease space on the market.
Taking into account all Manhattan office space, without regard to when it becomes available, the total amount of available space has actually increased over the past 12 months, from 68.3 million square feet to 68.6 million square feet, Studley reported. The World Trade Center buildings in development are not included in these statistics.
And within those figures was something potentially more troublesome for property owners. The amount of sublease space declined by 4.8 million square feet since the third quarter of 2009, but at the same time the amount of direct space — which is controlled by the landlord — increased by 5.1 million square feet. While the overall market available space is often discussed as a large block, direct space is more painful for a landlord because he or she is not receiving any income on it.
“The landlords have more space on their books than they did a year ago,” Coutts said. “And the question is — are they getting overly optimistic to the detriment of the ability to do deals in the coming quarters.”