Class B properties drag Midtown recovery

By Adam Pincus | May 04, 2011 11:29AM

Midtown’s smaller and older Class B buildings have vacancy rates rising and asking rents
declining, bucking the overall positive trend in Manhattan’s largest market, a monthly
report from commercial services firm Cassidy Turley shows.

“I would say that a concern today is the Class B market in Midtown as it is lagging in the
recovery,” said Robert Sammons, vice president of research at Cassidy Turley.

The 70 million square feet of Class B office space in Midtown had a vacancy rate of 15.3
percent in April, up from 14.2 percent in April one year ago. In contrast, the vacancy rate
for Class A buildings in the district is down to 11.4 percent last month, from 13.5 percent
a year ago, the report, released yesterday and covering April, says.

In addition, asking rents in Class B buildings have fallen by $0.26 per foot over the past
year to $42.38 per square foot, while Class A buildings have seen an increase of $1.97
per foot to $66.37 per square foot.

Source: Cassidy Turley

Part of the weakness in Class B properties which are generally older, located mid-block
and with less open floor plans, may be from the inexpensive, long-term sublet space that
had flooded the market since the downturn began in 2008, but that has gradually been
leased up, Sammons said.

The overall market for Manhattan has slowly stabilized and in areas improved over the
past year. The vacancy rate has declined to 12.2 percent from 13.2 percent one year ago.
At the same time, the average asking rent is down from one year ago, falling to $48.45
per foot from $48.82 per foot in April 2010, the Cassidy Turley report reveals.

“In April [the market] got back on track as far as the vacancy rate decreasing after a
rough first quarter,” Sammons said.

But the declining vacancy rate of high-quality space in Midtown could be pushed upward
in the coming months as two large blocks of space — 472,000 square feet at the old New
York Times Building at 229 West 43rd Street and more than 400,000 square feet at 1221
Sixth Avenue, from financial giant Société Générale — are put on the market.