Asking rent and leasing activity is still on the rise in Manhattan, though the market may be seeing the first of an expected increase in subleasing and vacancy rate.
As predicted since troubles began in the financial services industry this summer, investment banks are leasing space at a slower pace than before, according to Steven M. Durels, executive vice president and director of leasing for SL Green Realty. “Large financial institutions are sitting on the sideline,” he added.
Still, the average asking rent was up just over $1.50 to $68.46 per square foot in December, from $66.94 per square foot the month before, and up almost $14 from $54.62 per square foot in December 2006, according to data from CB Richard Ellis.
“The Manhattan market is still bullish, while bears are circling everywhere else,” said Adelaide Polsinelli, senior executive broker at Besen & Associates.
“Even with the psychology and pending job loss we have seen signs of, it will still be six to nine months before a change is reflected in the prices,” added Alexander Chudnoff, an executive director at Cushman & Wakefield.
Chudnoff said that with the vacancy rate still as low as it is, it would be hard for prices to adjust quickly, and when they do, they are more likely to level off than to actually decrease.
Vacancy rate on the island did creep up last month, a mere 20 basis points to 4.8 percent in December from 4.6 percent the month before, CBRE reported. It was still down from 5.0 percent in December 2006.
Looking forward, some industry experts see a further loosening of inventory on the horizon.
“We believe there will be a modest increase in availability as some large financial firms downsize by either electing not to renew certain space or placing a limited amount of space on the sublease market,” Durels said.
Leasing activity was up in Manhattan in December from the month before, rising almost 17 percent to 2.23 million square feet, from 1.91 million square feet in November, CBRE data indicate. It was down 18 percent from 2.73 million square feet in December 2006.
The total leasing activity in Manhattan throughout 2007 was 22.85 million square feet, down more than 23 percent from 29.86 million square feet for all of 2006, according to CBRE.
“Leasing activity is down now because there is less available space and a decline in new construction,” Polsinelli said. She noted that Manhattan’s vacancy rate is the second-lowest in the country.
The most activity is with smaller spaces, Polsinelli said, in the under-50,000- square-foot range.
Experts agreed that all types of prebuilt space are leasing the best, as the increasing cost of construction has made raw space unattractive to prospective tenants.
Midtown
The asking rent in Midtown was up $1 to $85.08 per square foot in December, from $84.08 per square foot the month before, and $67.10 per square foot in December 2006, CBRE data show.
“The healthiest submarket is—and will always be—Midtown,” said Polsinelli. “It is still the most desirable, the most in-demand and the most expensive.”
Leasing activity in Midtown was up 69 percent from the month before, to 1.25 million square feet in December from 740,000 in November, according to CBRE. It was down from 1.44 million square feet in December 2006.
According to Marisa Manley, founder and president of Commercial Tenant Real Estate Representation, the price differentiation between Class A and Class B space in Midtown has made lower-priced property in the submarket a rare find that tenants will jump on.
“If you can find reasonably good property in Midtown in a moderate price range,” Manley said, referring to offices below $90 per square foot, “that’s what’s renting the best, and there’s very little left.” She noted that most of the more affordable space in that area has been converted to Class A or is already leased.
The vacancy rate in Midtown increased 30 basis points to 4.4 percent in December, from 4.1 percent in November and 4.2 percent a year earlier, CBRE reported.
Midtown South
Average asking rent was up slightly to $50.55 per square foot in December, from $50.28 the month before, and
up almost $10 from $41.09 in December 2006, CBRE data indicate.
The vacancy rate jumped the most in Midtown South. It was up by half a percent to 5.4 percent in December, from 4.9 percent in the previous month, and 4.6 percent in December 2006.
Leasing activity dropped by 40 percent to 43,000 square feet from 720,000 square feet the month before. Leasing activity was still stronger than it was a year earlier, at 360,000 square feet.
Downtown
The vacancy rate Downtown increased for the first time in seven months, up to 5.6 percent in December, from 5.3 percent in November. It is still tighter than it was at 7.2 percent in December 2006. Its last increase was by 10 basis points to 6.1 percent in May.
Downtown’s leasing activity was 550,000 square feet in December, up from 450,000 square feet in November. It is lower than it was a year ago, at 920,000 square feet.The average asking rent Downtown rose to $47.26 per square foot in December from $46.53 per square foot in November, and up more than $7 from $39.99 per square foot in December 2006.