Big Downtown leases net almost no income

By Adam Pincus | April 01, 2011 06:44PM

From left: Steve Coutts, 499 Park Avenue (source: PropertyShark), 450 Park Avenue (source: PropertyShark), 1114 Sixth Avenue

Downtown landlords who inked major leases in Class A buildings last year made
practically no money on those deals once basic expenses were subtracted, a
recent report from commercial advisory firm Studley shows.

Office building owners of Class A towers earned an average of just $0.53 per
square foot on the approximately 15 large leases inked in 2010, once taxes,
operating expenses, electricity and concessions were accounted for.

That is down from the peak of $28.93 per square foot in 2007, and it was the
lowest landlord effective rent recorded since Studley began conducting the
survey in 1995. In it, they review the lease figures from direct, full-floor lease
deals in Class A buildings that have a term of at least 10 years. The survey
looked at deals in buildings such as 88 Pine Street, 7 World Trade Center and 77
Water Street, brokered by a variety of firms.

The anemic net income was created by low rents combined with high landlord
contributions and high taxes, Steve Coutts, Studley’s senior vice president of
national research, said.

“Those were working together to bring down the cost for tenants [and income to
landlords],” he said.

The equivalent figure for Midtown (which includes Midtown South) was also
the lowest since the survey was started, but was not as dismal as Downtown.
Last year the figure was $14.45 per square foot, down 11 percent from 2009
when it was $19.21. That survey reviewed leases in buildings including 499 Park
Avenue, 450 Park Avenue and 1114 Sixth Avenue.

The market high for Midtown since at least 2000 was in 2007, when the Class A
leases signed earned landlords $63.96 per square foot, Studley figures show.

But such dismal numbers may be a thing of the past, as landlords are raising
asking rents and cutting back on concessions, the firm’s preliminary figures from
the first quarter of 2011 show, even as the availability rate rose, too.

“Now we are seeing a change in the tide in regards to market fundamentals. And
it starts with the leasing activity,” Coutts said.

For Manhattan overall, average asking rents increased 3.3 percent in the first
quarter to $49.51 per square foot. For Midtown (combined with Midtown South)
asking rents rose by 3.8 percent to $54.91 per square foot.

Even Downtown, hit hard over the past year as Midtown and Midtown South
improved, saw healthier figures, registering a small asking rent increase of .6
percent, to $39.62 per square foot.

But in a sign that the market remains wobbly, the availability rate increased in
Midtown and Downtown in the first quarter of this year.

The Midtown availability rate rose by .3 points in the first quarter to 11.9 percent
from the fourth quarter, and Downtown, the rate rose by .4 points to 13.4 percent,
Studley statistics shows.

It was the first rise in Midtown’s availability rate after declining for four straight
quarters, the company statistics show.

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