Office leasing in Manhattan plummeted by as much as a third in 2012, as large companies pulled back from major deals. Brokers broadly blamed the decline on the climate of political and economic uncertainty this year. Preliminary figures for 2012 show office leasing activity declined by 33 percent to 26.8 million square feet this year — compared to 40.7 million square feet in 2011, data from commercial services firm Cassidy Turley show.
The final number for 2012 is almost certain to rise as deals close in the final hours of the year, Peter Hennessy, president of the tri-state region for Cassidy Turley, said. But it is still expected to be a large drop from last year, which was an unusually active one.
Citing the so-called “fiscal cliff” impasse in Washington, economic turmoil in the Eurozone, and the presidential election, “[Leasing activity] this year should not come as a surprise to anyone,” Hennessy said.
Despite the slow year, there were some large deals, such as media giant Viacom taking 1.6 million square feet in a renewal and expansion deal at SL Green Realty’s 1515 Broadway in Times Square. The second largest lease was also a renewal and expansion. Morgan Stanley signed a deal for nearly 1.2 million square feet to remain at Brookfield Office Properties’ 1 New York Plaza.
If no huge deals are completed before year’s end, leasing activity would prove worse than in 2008, when 29.9 million square feet were leased, Cassidy Turley data shows.
The dearth of activity has a direct impact on the bottom lines for the city’s commercial firms. Office leasing makes up a large portion of the revenue for large brokerage companies, such as CBRE Group and Jones Lang LaSalle, their financial filings with the U.S. Securities and Exchange Commission show.
For instance in the third quarter of 2012, the most recent data available, leasing revenue made up 31 percent of CBRE’s total revenues in the Americas, and was nearly 50 percent of JLL’s revenue in the Americas. (Their financial information is not broken down into smaller regions.)
Hennessy said the slow year would be a drag to all firms, but would hit financially vulnerable ones the hardest. “I think what’s happened, which I think happens in almost all businesses, is the stronger firms continue to do reasonably well, and the less well-capitalized, weaker firms, are not doing as well,” he said.
However, the meager activity could be made up for in 2013. “If we don’t fall over the [fiscal] cliff, next year could be quite strong for Manhattan with a combination of pent-up demand from 2012 along with a few relatively large lease expirations upcoming,” said Robert Sammons, a vice president for research services at Cassidy Turley.