Q1 office leasing “rather weak,” Colliers exec says

If absorption rates continue, 2 million square feet of space could be on market
By Hiten Samtani | April 02, 2013 06:00PM

Manhattan leasing activity in the first quarter of 2013 was on par with performance in the first and fourth quarters of 2012, but continued to hover below historical averages, said executives at Colliers International during a luncheon held to discuss the Manhattan office market. Net absorption — the difference between square footage that appeared on the market and square footage leased in the same period — was negative 777,831.

Total leasing activity in the first quarter was 4.89 million square feet, down from 4.97 million square feet in the fourth quarter of last year. If activity continued at the same rate, total leasing activity for the year would be below 20 million square feet, well under the 2012 total of 23.78 million square feet, said Joseph Harbert, president of Colliers’ eastern region.

“It’s been a rather weak Q1,” Harbert said.

Only 19 percent of the quarter’s leasing activity was renewals, which Harbert saw as a positive sign for the market. “It means people are moving up and into new spaces,” he said.

Big-ticket deals – those representing space of 100,000 square feet and up – made up 34 percent of the activity, which Harbert said was “healthy.”

Financial services continued to be the dominant industry in Manhattan, accounting for 25.4 percent of leasing activity, while only 14.3 percent of the activity was in the growth industries of technology and media. Last quarter, finance accounted for 24.9 percent of activity, while technology and media combined accounted for 16.7 percent.

These numbers were a cause for concern, Harbert said, as the financial services industry typically accounts for 33 percent of activity. Finance was still the main driver of the market, Colliers chief economist Peter Kozel added, and notwithstanding the growth of other sectors, “it needs to do better.”

The availability of space remained consistent from last quarter, with about 10 percent direct space and 2 percent sublease space. Just over half of this space was classified as “vacant,” which meant it was available for immediate move-in. Average rents for direct space were $57.24 per square foot, similar to last quarter, and rents for sublease space were $47.85 per square foot, dropping from $50 last quarter.

Some of the sublease space, due to its long-term contracts and locations in trophy buildings, behaved in a similar fashion to direct lease space, said Robert Freedman, Colliers’ Tri-State chairman.

Net absorption in Manhattan was negative, with 777,831 more square feet coming into the market than being leased in the first quarter. In comparison, net absorption in 2012 was positive, at 1.91 million square feet. If the first quarter trend continued, “you could be looking at 2 million square feet on the market,” Harbert said.

In a neighborhood analysis, Harbert showed that Midtown North had a flat quarter compared to last quarter, and activity dropped 22 percent from the first quarter of 2012 to 2.1 million square feet. Availability rose for the sixth consecutive quarter, and absorption was negative 570,271 square feet.

Midtown South had yet another strong quarter, with 1.57 million square feet leased, and continued to have very low vacancy rates, about 4.5 percent.

Leasing in Downtown was up 50 percent from last quarter, and 28 percent from the first quarter of 2012. The majority of the Downtown activity, Harbert said, was in the Financial District and World Trade Center, and availability rates remained high at 15.3 percent.

“For the coming year, at least, Downtown rents will be below Midtown South,” Harbert said.