The Manhattan class A vacancy rate held steady at 10.7 percent in February as additional blocks of available space offset leasing in all three major submarkets, according to a recent report by Colliers ABR.
A CB Richard Ellis report also found little movement in the availability rate in Manhattan. In Downtown and Midtown South, the availability rate rose 0.2 and 0.1 percent, respectively, while Midtown availability dropped 0.1 percent to its lowest level since August, the report said.
Overall, activity remains strong, with Manhattan tenants trading one space for another as leases expire in an attempt to catch what is perceived by many to be the bottom of the market, the Colliers report said.
Midtown
Having reached an inflection point in the fall, the Midtown office market is slowly turning in a healthy direction after a nearly three-year slump, the CBRE report said.
For the second month in a row, Midtown leasing activity was paced by a “mega-deal” exceeding 750,000 sf. In February, it was Bank of America’s 1.10-million-sf pre-lease transaction as the anchor tenant in the 2.1-million-sf tower at 1 Bryant Park, scheduled for completion in early 2008.
After rising almost continuously since the fourth quarter of 2000 and peaking at 13.6 percent in November, the availability rate in Midtown has declined for three consecutive months. In February it dropped 0.1 percent to 12.9 percent, the CBRE report said. Net absorption has also been positive for three consecutive months, with the market absorbing 1.34 million sf.
Sublease space continues to hang over the market, however. At 9.17 million sf, or 37 percent of available space, it remains well above the 10 percent to 20 percent range seen in a healthier market.
Average asking rents ended February at $50.14 per sf, up $0.30 compared to the month before.
The Colliers report said the class A vacancy rate remained at 10 percent for the second month in a row.
Downtown
Downtown, the availability rate rose 0.2 points in February to 15.6 percent, the highest rate since November 1997, according to CBRE.
Leasing activity was weak at 375,000 sf, and was down compared to the month before, the report said. However, for the first two months of this year, leasing was 68 percent ahead of the 2003 pace for the same period, the report said.
Much of the leasing activity in February involved educational users – the Borough of Manhattan Community College closed a 190,000-sf transaction at 75 Park Place. MetSchools, a for-profit education group, leased the entire 100,000-sf space of 41 Broad Street and plans to open the Claremont Preparatory School there.
The Class A vacancy rate rose to 13.8 percent in February from 13.7 percent the month before, the Colliers report said.
Average asking rents ended February at $32.25 per sf, down $0.53 per square foot from the month before, CBRE said.
Midtown South
After pacing Manhattan’s office leasing recovery in 2003, the Midtown South market has started out 2004 at a tepid pace, the CBRE report said.
February produced 281,000 sf of leasing, which lagged behind the five-year monthly average by 37 percent, the report said.
This year, the only non-renewal transaction larger than 25,000 sf through February was United Cerebral Palsy Association’s 26,000-sf lease at 330 West 34th St. Since the report was released, electronics retailer P.C. Richard & Son signed a deal for 40,000 sf at 53 West 23rd St.
Still, however, Midtown South has the lowest availability rate in Manhattan.
The availability rate stood at 12.5 percent in February, up 0.1 percent from the month before.
Another positive trend is the amount of sublease space on the market. Sublease supply has decreased a dramatic 1.28 million sf over the past 12 months in Midtown South, and now represents 29 percent of total availability, CBRE said.
Average asking rents ended February at $31.72 per sf, up $0.19 per square foot from the month before, the report said.
The Colliers report saw a slightly improved picture in Midtown South in February, with the class A vacancy rate dropping to 6.0 percent from 6.5 percent the month before.
Outlook
Going forward, however, a recent report by CRESA Partners offers a bleak picture of the rest of 2004. The company says a high volume of sublease space, combined with the decline of the financial services sector in Manhattan, the prospect of a jobless economic recovery and growing tenant willingness to move outside the city are all indications that the office leasing market will remain soft in 2004.
The report said sublease space currently accounts for approximately 34 percent of all available space in Manhattan, which will keep overall rents depressed as the economy and demand for space improve.
Bank mergers could also have a significant impact on the amount of subleasing in Manhattan. One industry leader said at a recent Real Estate Board of New York panel discussion that Wachovia and JPMorgan Chase might put additional space in play this year.
However, during the same discussion, Julian J. Studley Inc. chairman and CEO Mitchell Steir said he expects law firms continue to figure heavily in 2004 space leasing.
Much of what transpires will hinge on job growth. Last month saw the release of readjusted employment numbers for 2002 and 2003. There was good and bad news, according to the Colliers report, with fewer losses than originally announced in 2002, but more for 2003.
In January, New York City picked up 20,600 private sector positions with gains in every major industry except manufacturing. At the same time, the city unemployment rate shot up to 8.4 percent from 8.1 percent in December, partially due to the unemployed re-entering the labor pool.