Office vacancy and asking rents up in first quarter

Despite vacancy increases across the board in Manhattan in the first quarter of 2008, asking rents continued to grow as high-priced properties hit the leasing market, according to a first quarter market report by Cushman & Wakefield.

The vacancy rate in Manhattan increased to 6.1 percent in the first quarter, up from 5.7 percent in the fourth quarter of 2007. The borough’s average asking rent also increased: it reached $67.13 per square foot, up over $2 from $65.08 per square foot in the previous quarter.

At a press conference where the figures were released, Cushman officials gave one reason that Manhattan asking rents continued to increase in the face of increasing vacancies: space at several high-value properties now leasing have been driving the figure up. These include Silverstein’s 7 World Trade Center, Brookfield Properties’ One Liberty Plaza and the World Financial Center.

While Cushman & Wakefield COO Joseph Harbert conceded that “there has been some adjustment on taking rents,” figures for the actual prices for deals closed were not released.

The total volume of investment building purchases in Manhattan that entered contract or closed in the first quarter of 2008 was $5.1 billion, taking a plunge from over $20 billion in the first quarter of 2007. These figures only include deals above $10 million.

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Another telling figure: foreign buyers accounted for 45 percent of investment sales that went into contract in the first quarter of 2008, up dramatically from 3 percent in the first quarter of 2007.

Cushman CEO Bruce Mosler downplayed the impact of a nationwide recession and its effects on New York’s office leasing market.

“We are entering a new phase, after 10 years of upwards movement and only good news,” he said. Mosler predicts that Manhattan will see some “give back” of space – mostly sublet space – to the market.

The vacancy rate in Midtown increased to 6.0 percent, from 5.8 percent the previous quarter. Midtown’s average asking rent jumped over $2.50, to $78.85 per square foot, from $76.26 per square foot last quarter.

Midtown South posted a 30,000 square foot decline in leasing activity from the first quarter of 2007, and had no leases over 50,000 square feet. The vacancy rate there increased to 5.0 percent, from 4.7 percent last quarter. At the same time, the average asking rent increased over $2, to $48.95 per square foot, from $46.89 per square foot in the previous quarter.

Tenants also showed declining interest in Downtown, which saw no deals over 100,000 square feet. The vacancy rate increased to 7.2 percent, from 6.2 percent in the previous quarter. The average asking price was up to $50.28 per square foot, from $47.47 per square foot in the last quarter.

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