The Manhattan office leasing market started 2011 with a bang of big leasing deals, driving down availability rates significantly. It’s not expected to perform quite as well in early 2012, but real estate professionals do view the year ahead in a positive light.
Bruce Mosler, chairman of global brokerage at Cushman & Wakefield, said he does not expect much in the way of blockbuster deals in the first part of this year. That continues a trend that started in the second half of 2011 in which relatively smaller deals — less than 100,000 square feet — took a greater share of the market.
Firms with an international presence, for the time being, are holding off on leasing new office space to get a better idea of their needs amid worldwide economic tumult.
“Large multinationals are looking to see what is happening globally,” Mosler said. But “look for the second half of [2012] to be better than the first half in terms of large commitments.”
Uncertainty about possible layoffs at financial services firms is weighing on New York and the nation, said Brad Doremus, a research and economics analyst at the real estate data firm Reis. Yet he predicted that the local market will continue to marginally improve, in part because the restrained rent growth has kept the city relatively affordable.
“Much like 2011, we should see some declines in vacancy and measured increases in rents,” Doremus said. “I’d love to be wrong on the upside and see more improvement, but I haven’t had to change our forecasts materially since early 2010. And all bets are off if the euro disintegrates.”
Meanwhile, the Manhattan office leasing market ended the year on a positive note.
The availability rate — which measures office space available for rent now or in the next 12 months — fell to 10.9 percent last month from 12 percent in December 2010, according to figures from commercial firm Cassidy Turley. The availability rate also declined 0.1 point last month from 11 percent in November. And the average asking rent rose by $0.20 per foot to $51.40 per foot in December.
Cassidy Turley also reported that tenants signed 20.8 million square feet in new and renewal deals in the first half of 2011, compared with about 14 million in the second half of the year.
Midtown
High-profile law firm Wilmer Cutler Pickering Hale and Dorr (known as WilmerHale) is moving its 160 New York-based attorneys Downtown in July, and the Midtown market is already feeling the effects.
Brokers listed approximately 147,000 square feet of Class A office space at 399 Park Avenue with an asking rent of $99 per foot, which WilmerHale is vacating. The firm signed a lease in April 2011 for 210,841 square feet at 7 World Trade Center, according to CoStar Group.
Mosler said the turnover of office space from WilmerHale is beneficial.
“I think it is healthy for the market,” he said, noting that it keeps options open for tenants. “I don’t see significant shadow space. I think quality space will be gobbled up relatively quickly.”
Mosler said he anticipated some activity later this year in Midtown at the Brookfield Properties office development project dubbed Manhattan West, where construction is slated to start this month. Mosler is leading a Cushman team hired to lease the 5.4 million-square-foot project at Ninth Avenue and 31st Street.
“We will look to sign an anchor tenant in the latter half of 2012,” with a letter of intent or term sheet, for about 800,000 square feet, he said. The space could also be rented to several different firms rather than one large company.
Overall, the Midtown market tightened dramatically last month, falling 0.3 points to 11.6 percent, and the average asking rent rose by $0.32 per foot to $58.68 per square foot, Cassidy Turley statistics show.
Midtown South
“In Midtown South, there are bidding wars, the likes of which I have not seen since 2008,” said Sean Black, a vice president at Jones Lang LaSalle.
Black, in a widely reported deal, represented Internet social media site Foursquare, which signed a lease last month for 56,000 square feet at 568 Broadway in Soho.
While Foursquare is expanding, he said many tech firms are shoehorning their employees into small spaces — often below the average amount of office space per person of about 200 square feet.
“Some tech companies are under 100 [square feet] per person. But the question is: How long can that last? As a company begins to grow, we will ultimately see that per-square-foot rate per employee go to a more traditional level,” Black said.
He attributed the density to tech firms “racking and stacking” employees’ work spaces, then giving them room to breathe with break rooms or game rooms.
Also in Midtown South, digital animation firm Titmouse signed a 15,000-square-foot sublease for less than two years on the seventh and eighth floors at 129 West 27th Street, with an estimated rent of $25 per square foot, CoStar shows.
Joshua Winslow, president of brokerage Winslow & Company, represented the tenant, while Tadd Wisinski, David Starr and Andrew Lindsey, of UGL Services, represented Kaos Studios, the firm that’s giving up the space.
Overall, asking rents in Midtown South rose sharply, by $0.81 per foot, to $41.91 per square foot in December, while the availability rate edged up by 0.1 points to 9.5 percent, according to Cassidy Turley.
The increases in asking rent and availability were driven in part by the 425,708 square feet of Class A space at the office tower 101 Sixth Avenue that were put on the market.
Winslow said despite the tight leasing environment in Midtown South, there are still deals to be had.
“There are the last vestiges of value” in Midtown South and Midtown West from about 27th to 39th streets, between Fifth and Eighth avenues, because prices are much higher near Madison Square Park.
“Twenty-third [Street] is on fire,” he said. That’s largely due to restaurant and food market Eataly and advertising firm Grey Group moving into 200 Fifth Avenue, he said.
Downtown
Downtown was the darling of 2011, with Condé Nast signing a 1 million-square-foot lease, and construction at both 1 World Trade Center and the Santiago Calatrava-designed transportation hub plowing ahead.
But what about in 2012?
Several million square feet of Bank of America space at World Financial Center is expected to officially hit the market this year. That will undoubtedly impact availability rates.
“Downtown, the vacancy will spike, and that will have a very interesting impact on the market,” JLL’s Black said.
He noted, however, that the Downtown market is far stronger than it was only a few years ago. There were a number of spaces put on the market last month Downtown, including two at the 3.6 million-square-foot tower 55 Water Street, between Broad Street and Old Slip. There, CBRE Group brokers listed the entire 68,141-square-foot 48th floor and the 62,251-square-foot third floor, with no published asking rent.
The availability rate nudged up slightly Downtown, by 0.2 points to 10.5 percent in December, while the average asking rent rose slightly, by $0.13 per foot to $37.99 per square foot, Cassidy Turley figures show.