The national economy is humming along, but all the positive signs — a jump in home sales and prices, soaring consumer confidence and a new stock exchange record — have barely budged Manhattan’s office-leasing market.
Companies in the city, according to industry analysts, are still focused on cutting costs to keep profits healthy, even when Americans are feeling better about the country’s financial outlook — and with good reason. Last month alone showed huge upticks on three fronts: The volume of residential mortgages nationwide climbed 14 percent, the Conference Board Consumer Confidence Index hit a five-year high and the Dow Jones Industrial Average closed above the 15,000 mark for the first time.
The belt-tightening is reflected in relatively stable rent prices and flat availability rates, from April to May. The average asking rent for Manhattan rose only 30 cents per foot to $55.96, and the availability rate, which measures space open now or in the next 12 months, remained at 12.2 percent, preliminary figures from commercial firm Colliers International showed.
“Controlling costs by using less space, that continues to be a theme,” Peter Kozel, executive managing director and chief economist for the New York office of Colliers, told The Real Deal in explaining the numbers.
Kozel, however, expects the commercial outlook to brighten later in the year. He sees growth in the stock market driving mergers and acquisitions as well as initial public offerings. A rise in these two labor-intensive processes could lead large financial services firms to add space — or at least not cut back as much.
Another commercial insider, Gregory Kraut of Canada-based Avison Young, is on the same page.
“Consumer confidence is one of the leading indicators in terms of leasing activity and rental-rate growth,” said Kraut, principal and managing director of the company’s New York office.
The city’s largest office district, packed with big national firms such as Bank of America and Time Warner, saw small improvements — just as Manhattan did overall. The asking rent rose by 22 cents per square foot to $65.25, while the availability rate fell by one-tenth of a point from 12.7 percent to 12.6 percent, Colliers data showed.
Yet, large blocks hit the market last month, and Kozel expects more of the same in the coming months.
The largest space was for more than a third of the 547,954-square-foot office tower at 114 West 47th Street, between Sixth and Seventh avenues. It has no asking rent.
The Durst Organization, owner of the 26-story skyscraper built in 1989, listed space on floors 17 through 26 totaling 209,176 square feet, CoStar figures showed. The chunk had been leased to Bank of America, which downsized last year in a renewal. The bank had occupied nearly the entire building but inked a new deal for only 360,000 square feet last year.
The space is near large vacancies piling up on Sixth Avenue, yet Kraut talked of rumors about pricey leases being negotiated in the Plaza District.
“We are about to see some significant deals in the high end of the market,” he said, with private equity and hedge funds paying $130 per foot and more. “There is a big delta between the tower floors and the lower floors,” where pricing is flat, Kraut said.
Midtown South’s tight supply of space had raised rents until an unusually large block hit the prime area last month. The average asking rent per foot increased 18 percent over the last 12 months, from $43.09 in May 2012 to $50.84 last month, Colliers data showed.
From April to May, though, the rise was less steep — only 24 cents per foot — and the availability rate rose by two-tenths of a point, from 9 percent to 9.2 percent, figures from Colliers show.
The new chunk of space is at William Macklowe Company’s 386 Park Avenue South at 27th Street, where six floors — 15 through 20 — are available. The space totals 74,270 square feet, CoStar showed.
Just two years ago, real estate investment company Savanna owned the building and was charging rent rates in the mid-$40s range, data from CoStar revealed. Today, Macklowe owns the building, and the asking prices are at least $10 per foot higher.
Shortly after Macklowe bought the tower in September for $111.5 million, Savanna co-managing partner Christopher Schlank kidded CEO Bill Macklowe about his quest for higher rents.
At an industry forum, Schlank told the audience: “Billy thinks he can get 10 bucks a foot more than we’re getting. That’s great. In many ways, fantasy is better than reality.”
Yet, Macklowe’s leasing team from CBRE Group — Paul Amrich, Ross Zimbalist, Neil King and Kerry Powers — is asking from $57 to $65 per foot, one insider said.
Macklowe, Savanna and members of the leasing team declined to comment.
Even eight months after Hurricane Sandy, there is still evidence of the storm’s fallout in Lower Manhattan. The New York Daily News, for example, wants to sublet one of its floors at 4 New York Plaza, a clear indication that it won’t reoccupy all of its nearly 100,000 square feet in the 22-story tower. Not long after Sandy barreled through the region, the newspaper found it had to relocate because of water damage and moved out of Lower Manhattan when it signed a sublease at 1290 Sixth Avenue in Midtown. The Daily News has not revealed its long-term plans.
For other companies, Sandy delayed their plans to move in. Now, those deals are finally wrapping up. The National Futures Association, for example, is moving only a few blocks, from 120 Broadway to 1 New York Plaza, a 2.4 million-square-foot building along the East River between Broad and Whitehall streets. Brookfield Office Properties owns the 50-story tower.
The private financial services regulatory group began looking at Brookfield’s tower in the summer, but Sandy put the process on hold, said Duncan McCuaig, the landlord’s vice president of leasing. The group signed a 10-year lease for 35,881 square feet on the 43rd floor, CoStar data showed; the asking rent was $49 per foot.
That price is $3.38 per foot higher than May’s average asking rent of $45.62. April’s average stood 11 cents higher — $45.73. The availability rate rose by a tenth of a point, from 15.7 percent to 15.8 percent, Colliers figures showed.
Brookfield was represented by McCuaig and a CBRE team of Adam Foster, Zachary Freeman, Desiree Harbacek, Kenneth Rapp, Michael Rizzo and Peter Turchin. CBRE agents Mark Keebler, Bradley Serot, Scott Sloves and Robert Wizenberg represented the association.
Interest in 1 New York Plaza has remained high even after the group took the space, McCuaig said.
“We have five tenants looking at the building seriously in the 50,000-square-foot-plus range,” he said. “We are seeing all the industries, some traditional like insurance and finance, and some non-traditional, like publishing and apparel.”