While the Manhattan office-leasing market has been stuck in neutral all summer and has been dealing with Wall Street’s shrinking footprint, real estate professionals say it’s also suffering because of the uncertain outcome surrounding November’s presidential election.
Marc Holliday, CEO of the city’s largest office landlord SL Green Realty, told analysts late last month that Manhattan tenants are holding off on leasing decisions until voters decide whether to give President Barack Obama four more years in the White House or replace him with GOP contender Mitt Romney, the former governor of Massachusetts. That is, he said, despite growth in New York City office employment.
“Tenants seem to be taking a more cautious approach right now, and I think this will remain the case, certainly for the next several months, until we clear the election,” Holliday said.
CLick to enlargeDespite the broad sense of a stalled market, the overall Manhattan availability rate — which measures space available now or in the next 12 months — fell by 0.2 points last month to 10.3 percent in July, while the average asking rent ticked up by $0.25 per square foot to $54.95 at the same time, figures from commercial firm Cassidy Turley showed.
Still, the Bloomberg administration also expects the office leasing market to remain weak. But it has an alternate reason for its thinking: the more efficient use of space
Indeed, the city’s Office of Management and Budget said in a report released at the end of last month that while the number of office workers rose by 93,000 over the last two years, the amount of available office space only fell by 9.3 million square feet. That came to about 100 square feet per person, “which is below the rule of thumb of 225 [to] 250 square feet per employee,” the report said.
“Firms may be shifting their practice toward a more efficient use of office space, even as economic conditions improve,” it continued.
Midtown tenants have been focusing on more efficient use of space since the downturn.
In one recent example, the large nonprofit Practising Law Institute [sic] inked a deal for around 69,000 square feet at Silverstein Properties’ 1177 Sixth Avenue last month.
The organization — which provides continuing legal education for attorneys — signed a lease for space on floors two, three and four in the 921,637-square-foot office tower located between 45th and 46th streets. (The lease was for around 11,000 square feet less than the nonprofit currently occupies.)
A Jones Lang LaSalle team including Paul Glickman, Frank Doyle and Cynthia Wasserberger represented Silverstein. PLI was represented by Ira Schuman, Patrick Gardner, Howard Poretsky and David Goldstein, all of Studley.
According to one industry source, the rent for PLI starts at $59 per square foot and rises to $71 per foot over the course of the 15-year lease. JLL did not respond to requests for comment.
The PLI rent was just a bit below the average asking rent in Midtown in July, which was $62.74 per foot, up 4 cents from June.
Victor Rubino, president of PLI, said the organization visited about 10 buildings in the late spring and selected the building in part because Silverstein configured the nonprofit’s space more efficiently on three floors instead of five. He declined to confirm the rental figures, but said rental payments start “in the $50s” and rise over time.
He said the company is moving its staff from 80,000 square feet at SL Green’s 810 Second Avenue — where it’s been located since 1973.
Shrinking the company footprint “was a motivating factor,” Rubino said.
Citigroup is looking at a similar consolidation.
Last month the bank put 238,021 square feet of sublease space at 666 Fifth Avenue on the market with a team that includes Neil Goldmacher, a vice chairman at Newmark Grubb Knight Frank. Citigroup has less than two years remaining on its lease.
“This is part of our ongoing efforts to consolidate our real estate footprint in New York City in order to achieve greater operating efficiencies,” Mark Costiglio, a spokesperson for Citigroup, said in a statement.
Sources said Citigroup is shifting staff to 399 Park Avenue and 601 Lexington Avenue, but Costiglio declined to comment on that.
In another sign of its strength, Midtown South saw the steepest decline in availability among Manhattan’s three markets.
The already tight market, which has outperformed its neighbors for the last year, saw its availability rate drop by .4 points last month to 8.2 percent. That’s down from 9.5 percent in August 2011, figures from Cassidy Turley showed. The average asking rent for the area rose by $0.51 per foot in July to $46.42.
Among the space that was listed in the tech-firm-friendly market last month was the 9,000-square-foot-plus second floor of 26 West 17th Street, which CBRE Group brokers Sacha Zarba and Jared Isaacson represent. It’s unclear which tenant is looking to sublease the space, but the lease has just over a year left.
A short time frame like that sometimes deters tenants, but the marketing material says the landlord would also do a long-term direct deal. However, Michael Moorin, senior managing director at Newmark, noted that some prospective tech tenants want the flexibility of a short-term lease because the tech industry is in regular flux.
“There are short-term — one-to-two year — subleases that, if decently built, have value for tech tenants,” he said.
The rapidly expanding title company, TitleVest, signed a renewal-and-expansion lease last month in Lower Manhattan at 44 Wall Street, company president and CEO Bill Baron said.
The company renewed about 17,000 square feet and added about 8,758 square feet on the ninth floor. The title insurance firm is also looking to take another 8,000 to 9,000 square feet to accommodate its growth, Baron said. Over the past year the company grew from 89 full-time staffers to 184, he said.
The Downtown market is Manhattan’s most affordable, with average asking rents of $38.50 per foot in July, up $0.22, Cassidy Turley figures showed. At the same time, the availability rate was down by 0.2 points to 10.4 percent.
TitleVest, which was represented by Studley’s Marc Shapses, looked around before inking the new deals, Baron said.
“We looked at other buildings both Downtown and Uptown in Midtown, and we found Downtown still offered a better value as compared to similar quality space in the Midtown market,” Baron said.