Many tire kickers, few deals

<i>Leasing velocity in Manhattan market about half historical norm despite discounts</i>

Anecdotal metrics such as space inspections, inquiries and offers indicated that commercial real estate activity was up in the past month, compared to a near-standstill in December and January, brokers said. But the number of leases signed remained low.

“I have seen more leasing activity in the last three weeks than I did in the preceding three months,” David Hoffman, executive managing director at full-service brokerage Colliers ABR, said in late April. But he added, “It is not a very quick process. I can’t say in the last three weeks we have signed a lot of leases.”

Cory Abdo, a tenant representative broker and executive vice president at Winoker Realty, saw a similar trend.

“There are a lot of people kicking tires but not a lot of leases actually being signed. There is a lot of activity but it is not generating closed deals to the same percentage level as in a normal market,” Abdo said.

CB Richard Ellis data from March, the most recent month available, showed leasing velocity in the Manhattan office market was about half its historical norm despite steep discounts in average asking rents. In Midtown, prices have been cut an average 24 percent since the market’s peak in June 2008.

Abdo said one measurement of increased activity for a tenant representative broker was showing spaces. The amount of space available to show to prospective tenants had as much as doubled with the increased inventory on the market.

He gave an example of one client looking last month for 6,000 square feet in Midtown South near Broadway and Seventh Avenue who might have looked at about half a dozen spaces last year.

But now, “between sublets and direct there are probably 15 to 20 things that fit the requirement,” he said.

Alan Rosinsky, principal broker at Metro Manhattan Office Space, signed his first two leases of the year in March, and both were non-renewal, short-term, two-year contracts. He said a year ago he rarely did such short deals.

In the tenant-friendly market, the landlord in one of the buildings provided far more improvements to the space than would have been done in recent years.

Landlords “will do more work. Usually on a two-year deal it would have been, if you were lucky, paint. [But] this space they refinished with hardwood floors, they carpeted, they built Sheetrock walls, they put some hardwood doors in. You would not have seen that two years before,” Rosinsky said.

Midtown

Average asking rents in Midtown fell for the ninth straight month as landlords put lower prices on available blocks of space and leasing velocity remained half of its normal levels, the CBRE report said.

Rents fell to $65.59 per square foot in March, a loss of $3.18 from the month earlier and 24 percent off the high of $86.57 in June 2008, while the vacancy rate rose 0.3 points to 8.6 percent, the most recent data available from CBRE showed.

But the declines were not as steep as in February, when asking rents lost $5.99 per square foot.

Hoffman at Colliers said just as the $200-per-square-foot rents in marquee addresses in the Plaza District pulled rents up in a radius around the building in the run-up in pricing, so low-occupancy office buildings will drive down rents in their vicinity.

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“It is these utilitarian, run-of-the-mill office buildings that have these huge vacancies that are dragging everything back the other way,” he said. “It’s like, well, how can I get away with charging $100 per foot when someone can make a $40 deal 10 blocks away?”

Huge blocks of space, such as 485,000 square feet from advertiser Grey Global Group at 777 Third Avenue, continued to be returned to the market in March, while very few significant leases were signed.

Leasing velocity was at 600,000 square feet in March in Midtown, about half the historical average, CBRE reported.

Midtown South

Pricing in the more modest Midtown South district has held up better than Midtown since the economy soured last year.

Average asking rents declined to $47.90, a fall of 2.6 percent from the month earlier, but have fallen only 10 percent from the high mark of $53.37 per foot in August 2008, CBRE data showed.

The vacancy rate hit 9.1 percent in March, up a modest .2 points from the month earlier, with just 90,000 square feet leased, the data showed. Leasing velocity, as in Midtown, remained at about half its historical average.

Joseph Grotto Jr., senior managing director at full-service firm Colliers ABR, said Midtown South tenants in general would find it harder to achieve the same percent of rent reduction as their Midtown counterparts because the rental rates never rose as dramatically there.

“The Midtown South tenant that is down there is already in the lower rent district to start with. The only thing within Midtown South would be to go maybe to the side streets as opposed to staying on the avenues,” he said.

Jeffrey Buslik, a director and broker at property management and brokerage firm Adams & Company Real Estate, said he sees tenants doing just that.

“I think a lot of the garment tenants are moving off the avenues. It is a real opportunity to save money to go to a side street,” Buslik said.

Buslik, both a building agent and tenant representative broker, said rents in a premium Midtown South avenue building are about 15 percent higher than those in a similar building on a side street.

Downtown

Although the average asking rent dropped and the vacancy rate rose Downtown, as in the other three Manhattan markets, it was the only one that saw more leasing activity in the first quarter of this year compared with 2008.

In the first three months of 2009, 560,000 square feet of leases were signed, a slight increase from the 550,000 square feet signed in the same period last year, the CBRE report said.

Rents in the market fell by $0.47 to $43.17 in March, while the vacancy rate rose 0.3 points to 8 percent, CBRE said.