Downtown slipped into the summer doldrums in July as leasing waned, while Midtown and Midtown South saw similar slow leasing but avoided the spike in space returns seen in the Downtown market, a report by CB Richard Ellis said.
A Colliers ABR report said that the overall vacancy rate in Manhattan improved from 12.7 percent in June to 12.4 percent in July, fueled by leasing activity within the class B office market. The vacancy rate plummeted for class B inventory, dropping from 15.1 percent to 14.6 percent. Meanwhile, the class A market saw vacancy climb incrementally from 10.7 percent to 10.8 percent. The report said that tenants are pursuing class B property because they are sensitive to rent costs due to the struggling economy and are “on the hunt for good value.”
DOWNTOWN
Coming on the heels of a strong second quarter that featured two of the year s largest deals, the Downtown office market saw leasing activity drop and negative net absorption spike to its highest monthly level since January 2002, the CB Richard Ellis report said.
The high negative net absorption was caused by two large blocks that officially became available in July. One was 530,000 sf at 15 Broad St., where Bank of New York had been leasing the entire building on a month-to-month basis but is no longer in occupancy. The building had once been the planned future site of the New York Stock Exchange. Lehman Brothers is also offering 372,000 sf of space for sublease at 1 World Financial Center. Net absorption had been in positive territory going into July, but is now negative 512,000 sf for the first seven months of the year. That s still much better than last year during the same period, when there was 1.6 million sf of negative net absorption.
Leasing activity remained tepid Downtown, with 259,000 sf in July, 48 percent less than the month before and down 37 percent compared to last July. The largest transaction of the month was a renewal of 58,000 sf at 120 Broadway by Lester, Schwab, Katz & Dwyer.
As a result of large blocks of space becoming available, Downtown availability jumped from 14.1 percent to 15 percent. Colliers ABR also saw a jump, reporting that the vacancy rate in class A property rose from 12 percent to 12.4 percent for Downtown. CB Richard Ellis noted the overall vacancy number was particularly strong in the World Financial submarket, where it shot up from 24.5 percent to a record high 28.9 percent in July. Average asking rents ended the month at $33.94, a one percent increase. Rents have dropped by 9 percent in the last 12 months, CB Richard Ellis said.
MIDTOWN SOUTH
Despite weak leasing activity, July was a fairly good month for the Midtown South office market, the CB Richard Ellis report said. Net absorption was positive for the second consecutive month and the availability rate dropped below 13 percent for the first time since Sept. 2002.
Midtown South recorded 253,000 sf of leasing in July, a 61 percent drop compared to June s strong performance of 648,000 sf. But overall, there wasn t a high rate of tenants returning space, either. As a result, there was 240,000 sf of positive net absorption for July. Thus far this year, net absorption has totaled 335,000 sf, compared to a negative net absorption of 1.32 million sf for the first seven months of last year. This is a strong indication that Midtown South s available supply has stabilized, the CB Richard Ellis report said. At month s end, Midtown South s availability rate was 12.7 percent, down from 13 percent a month earlier. The Colliers ABR report supported those findings, and noted the class A vacancy rate in Midtown South improved from 7.3 percent in June to 6.9 percent in July.
The largest new lease in Midtown South in July was DoubleClick s 15-year lease for 76,000 sf of class B space at 111 Eighth Ave. in Chelsea, followed by advertising company Deutsch Inc. s renewal of its current 107,000 sf lease and expansion by an additional 25,000 sf. The Colliers ABR report said that activity for Class B office space was strong in the Flatiron and Chelsea submarkets. In addition to DoubleClick, deals within the B market included U.S. Concepts, Ovid Technologies and Bad Boy Entertainment.
The Chelsea submarket was responsible for 43 percent of leasing activity in Midtown South in July. Noho/Soho was the only submarket where the availability increased in July, though it also has Midtown South s lowest availability rate at 6.8 percent. Asking rents held fairly steady, dropping $0.14 per sf in July to $31.41 per sf.
MIDTOWN
Midtown experienced a July similar to Midtown South s – lackluster leasing, but strong positive net absorption. The availability rate saw its first monthly decline in 11 months, to 12.4 percent. Colliers ABR reported class A vacancy as improving from 10.6 percent in June to 10.5 percent in July.
Leasing activity in July was the weakest thus far in 2003, with just two new leases for more than 25,000 sf, CB Richard Ellis said. Midtown recorded 588,000 sf of new leasing in July, down 28 percent compared to the month before. The month s largest new lease was for 81,000 sf at Times Square Tower by Clarendon Insurance Group. A bright spot not reflected in the statistics, however, was Estee Lauder s 15-year renewal of 309,000 sf at 767 Fifth Ave. Estee Lauder and a host of other Midtown companies – including KPMG, Bovis Lend Lease, Bank of New York, and others – have chosen to remain in place and renew early to take advantage of the soft market.
While leasing was slow in Midtown, fewer tenants returned space. At 291,000 sf, July was the first month of substantial positive net absorption in Midtown in 2003 (there was 40,000 sf of positive net absorption in February). Thus far this year, negative net absorption has prevailed, though it is 10 percent less than last year s total for the first seven months of the year. Only two submarkets, Times Square South and the Plaza District, have had positive net absorption for the year thus far. Asking rents inched down $0.34 per sf in July, settling at $49.54 per sf at month s end.