Midtown saw a rise in its class A office vacancy rate in September, while Downtown experienced a slight uptick and Midtown South remained unchanged, according to a recent report.
The increased vacancy in Midtown was partly due to new construction coming online, in particular 650,000 sf at 300 Madison Ave., the CIBC Tower, the report by Colliers ABR said.
Conflicting economic data made it hard to form an overall picture of the marketplace, however.
“There are many opposing indicators giving mixed signals about the direction of the economy,” the report said. “This obviously reflects on the New York real estate market, which remains topsy-turvy.”
One trend is the increasing number of tenants entering the marketplace because their lease is about to expire, or because they think that they can get a good deal because they believe the bottom of the market has been reached.
“There is some anxiety now to renew or new lease while rates are low and space plentiful,” the report said.
In particular, tenants seem to be grabbing up sublease space. The Colliers report said sublease space in Manhattan is at 9.6 million sf for class A space today compared to around 10.4 million sf a year ago. Cushman & Wakfield, in its third quarter report released earlier, also noted that sublease space was being gobbled up.
The C&W report said there was 14.3 million sf of space on the market at the end of the third quarter, compared to 15 million sf at the end of the second quarter and 16.3 million sf at the end of 2002.
Jim Delmonte, C&W s director of research in Manhattan, said part of the decline is a result of companies taking space off the market because they expect job growth in the next year.
Removing space is “a sign of a market correcting itself,” said Drew O Malley, principal and director of brokerage services of Trammell Crow in New York. “The next step would be for these companies to acquire some direct space.” The Colliers report concludes that if the U.S. economy picks up steam and if hiring improves, Manhattan could see a healthy decrease in the overall vacancy rate by the fourth quarter of 2004.
Another factor in tenants looking to sublease space recently is the availability of relatively long deals. “There are longer terms available,” said Delmonte. “A good number of companies were taking more space than they needed at the height of the market back in 2000, so if they signed a lease for ten years there are still seven years left. Many companies also don t want to undertake major capital expenditures and are taking advantage of already built-out space, O Malley said.
In terms of different areas, “some of the better located sublease space in the better buildings has moved quickly,” said O Malley. “There are only smaller pieces of space now in the Plaza District.”
However, direct space is up sharply from a year ago, with 10.9 million sf on the market last year versus 14.7 million sf today, the Colliers report said.
Midtown
The Midtown Class A vacancy rate climbed to 11 percent in September compared to 10.3 percent in August, the Colliers report said. The increased vacancy was partly due to new construction coming online, in particular the 650,000 sf at 300 Madison Ave. In addition, blocks of space were added in the Rockefeller Center, Plaza and Penn/Garment submarkets. New construction could provide for a further uptick in the Midtown vacancy rate in the open months of 2004, when 7 Times Square will be completed with up to 900,000 sf available. Asking average rents in Midtown for class A office space fell to $50.51 per sf in September from $51.14 the month before.
Midtown South
The Midtown South class A vacancy rate held steady in September at 7.2 percent, with little change among either direct or sublet availabilities.
Asking average rents in Midtown South for class A office space fell to $31.78 per sf in September from $31.94 in August. However, rents were up compared to June, when they stood at $31.20.
Downtown
Downtown saw a slight uptick in its vacancy rate to 12.9 percent in September, compared to 12.7 percent in August, according to the Colliers report. The report did not include, however, Cadwalader Wickersham & Taft s lease of 450,000 sf at 1 World Financial Center.
The class A average rent increased very slightly in September, to $34.89 per sf up from $34.86 per sf the month before.
Overall, average asking rents have been flattening recently, with the Manhattan class A rate closing September at $45.26 per sf, down from $45.46 per sf in August. Since the beginning of the year, asking average rents have fallen five percent, versus a 10 percent drop for the same period last year.