The Manhattan office leasing market tightened last month even as the unpredictable stock market and stalled national economy unsettled landlords and tenants alike.
Landlords, who have seen their leverage strengthen over the past year, lost a bit of confidence because of the new round of economic turmoil, some Manhattan brokers said.
“The market was rising rather quickly, particularly in the better product and the better locations, [but] I think tenants’ expectations [now] are that the deals should be improved and they should be more aggressive,” David Hollander, a senior vice president at CB Richard Ellis, said.
But that doesn’t mean that most tenants are chomping at the bit to get deals done. Some are becoming more cautious, which is further unsettling landlords. “It is a question of confidence,” George Keller, a senior director at Cushman & Wakefield, said. “Everyone is saying, ‘Let’s sit tight for a while,’” he said. With the recent layoffs at financial firms, he expects more sublease space to be put on the market in the coming months.
Meanwhile, unlike the last few months, there were no blockbuster leasing deals in August. In fact, one of the biggest stories last month was the announcement from Swiss banking giant UBS that instead of leasing 800,000 square feet at Larry Silverstein’s 3 World Trade Center, which the bank had been considering, it would keep its large trading floor in Connecticut (see “Pricing out the World Trade Center”).
But even as many are locked in a wait-and-see mode, so far the overall Manhattan market statistics are not registering a new slump. In fact, the figures, which tend to trail the actual economy, continue to improve.
The Manhattan availability rate, which measures space available for rent now or in the next 12 months, dropped by 0.3 points to 11.2 percent in August, preliminary figures from commercial services firm Cassidy Turley showed. That is down from 12.6 percent in August 2010. In another indication of a healthy market, landlords’ asking rents rose slightly last month in Manhattan, by $0.17 per foot to $49.02 per foot. That’s up $1.17 per foot from the same point last year, Cassidy Turley statistics indicated.
Activity on mid-size and smaller deals remained healthy even as there were only two leases greater than 100,000 square feet in Manhattan, Cassidy Turley figures showed as of late last month. For example, major Midtown tenant Polo Ralph Lauren expanded at 625 Madison Avenue, taking over another 63,000 square feet in the building from the departing tenant, real estate asset management firm Centerline Capital Group.
And in Midtown South, Jack Resnick & Sons, which recently fully leased up one Hudson Square building, put a large block on the market at another in the same neighborhood at 315 Hudson Street. And Downtown, a newly formed financial trading company inked a deal for 8,200 square feet at 88 Pine Street.
Midtown
In a complicated three-way deal, Polo Ralph Lauren took about 63,000 square feet at SL Green Realty’s 625 Madison Avenue, leasing all of the fifth and part of the fourth floors, CoStar Group reported.
Centerline Capital Group — which moved to another SL Green building at 100 Church Street in Lower Manhattan to get cheaper rent — vacated the space and terminated its lease, which ran until 2017. Ralph Lauren, which had first rights to the space, jumped at the opportunity to expand, and inked a direct deal with SL Green.
The fashion company already had more than 306,000 square feet in the 570,000-square-foot building, CoStar figures show. Ralph Lauren’s new floors will expire at the same time as its existing leases in the building.
Hollander, Stephen Siegel and Chris Mansfield, of CBRE, represented Centerline.
“We marketed the space for about a year [as a sublease],” said Hollander about finding a tenant to take over Centerline’s space. But because Ralph Lauren had first rights on a lease expiration, “we were a little bit hamstrung.”
Yet his client made out well. “Centerline was paying above-market rents [at 625 Madison Avenue] and we were able to move them down to 100 Church at substantially below-market rents,” Hollander said. Real Estate Weekly first reported Centerline’s move.
David Goldstein and Mitchell Steir of commercial advisory firm Studley represented Ralph Lauren. They did not respond to a request for comment.
Average asking rents for Midtown rose by $0.20 per square foot in August to $55.60 per square foot. The availability rate fell by .1 point to 11.7 percent, the Cassidy Turley figures revealed.
Midtown South
Last month, Jack Resnick & Sons got an early jump on marketing a space that won’t become available until a year from now. Indeed, it listed a large block in Midtown South, where the availability rate dropped to its lowest level in nearly four years.
The availability rate in Midtown South was 9.5 percent in August, down .6 points from the prior month. That was the lowest in the area since it was 9.3 percent in December 2007, Cassidy Turley statistics showed.
Resnick’s Brett Greenberg, a managing director with the landlord firm, said the 51,000-square-foot, full eighth-floor space at 315 Hudson Street between Vandam and Spring streets, was put on the market in mid-August, with an asking rent of $47 per square foot. That’s higher than the average asking rent Cassidy Turley shows for Midtown South, which was flat last month, falling by $0.02 per square foot from July to $40.85 per square foot.
While August is a traditionally a slow month, “The activity has been surprisingly good for this time of year. That makes me optimistic for September,” Greenberg said.
The U.S. General Services Administration, which currently occupies the eighth floor in the 427,000-square-foot Class B building, has a lease expiring in September 2012.
In addition, Greenberg is marketing a 24,822-square-foot space on the building’s fifth floor that’s vacant. Resnick expects to finish renovating the elevators and the lobby by the first quarter of 2012.
Downtown
Even as financial services firms continue to trim jobs in New York City, some companies plowed ahead to set up shop.
A newly incorporated proprietary trading firm, Merus Capital Partners (not to be confused with the Palo Alto, Calif., venture capital firm Merus Capital) signed a 10-year lease for 8,200 square feet on the 17th floor of 88 Pine Street, at Water Street, CoStar data shows. It’s unclear what Merus paid for the space, but asking rent for a space on the same floor in the 634,000-square-foot building — which is owned by Orient Overseas Associates — was listed for $41 per square foot last month.
Cushman’s Keller, who represented Merus, declined to comment on the deal, and Merus could not be reached for comment. Frank Cento and Robert Constable, also of Cushman, represented the landlord.
“Lower Manhattan is going through a sea change,” Keller said, especially with creative media firms taking large blocks of space. But many of the recent deals have been smaller.
“The activity in the market in Lower Manhattan is basically under 20,000 [square feet],” Keller said, but added that “there are a couple of big tenants running around who have not landed yet.”
An employment report published last month by investment firm Eastern Consolidated showed that the city lost 2,300 securities jobs in the first seven months of the year, even as overall office jobs grew by 26,500 in that period.
The availability rate for Downtown fell by 0.3 points to 11.6 percent in August, while the average asking rent fell by $0.18 per foot to $37.56 per square foot, Cassidy Turley showed.