Jones Lang LaSalle

Market Shows Signs of Stability
Wednesday, January 11, 2006
By Barbara Nelson

Barbara Nelson is editor of Real Estate New York .
NEW YORK CITY-Vacancy rates are down in the overall Manhattan leasing market and statistics show a strong demand for the city’s most expensive space, according to Cushman & Wakefield’s Q4 report released today. Throughout the city, the vacancy rate fell to 8.4%, a six-year low, equating to a stable market, said Joseph Harbert, C&W’s chief operating officer for the New York metro area. “We are in equilibrium, but we are not quite where we were in the late 90s, when we all thought the market was good, however.”

Midtown had the lowest vacancy rates in the city at year’s end, with very few blocks of space remaining over 200,000 sf. The overall Midtown vacancy rate declined to 7.8%, its lowest level since the third quarter of 2001. Midtown South vacancy rate declined to 7.4%, it¹s lowest since Q2 of 2001. In the beginning of 2005, 23 large blocks over 200,000 sf were on the market. At year’s end that number declined to five, said Harbert.

Rental rates steadily increased in 2005, with the average asking rent in Midtown rising to $47.41 per sf at year end, more than 3% higher than last year. The average direct asking rent for class A space in the city was $54.41 with Madison/Fifth Avenue class A space averaging $74.29 per sf.

The financial services industry drove the leasing market with 29% of the activity, legal services with 11% and communications and media at 9%. “The most expensive office space, located for the most part on Fifth Avenue, Madison Avenue and Park Avenue, has been leased primarily by financial services, hedge fund and real estate investment firms,” explains Harbert. “Those are the types of tenants who are growing and competing for this type of space.” However, a wholesale tenant was the largest renter in 2005. The Gift Industry leased 417,000 sf at 7 West 34th St.

While overall leasing activity decreased by nearly 14% during the last 12 months, 2005 was a still a comparatively strong year for leasing. Overall leasing activity for 2005 totaled 25.5 million sf, down from 29.5 million sf in 2004. This can be attributed to “fewer firms that gave up excess space, companies that had been marketing excess space for lease took it back off the market and a substantial amount of space was converted to residential use in Midtown South and Downtown,” said Harbert.

Downtown vacancy rates also declined to 10.6%, but leasing activity was at a 13-year low. C&W’s executive broker and Downtown leasing expert Andrew Peretz said much of the leasing activity was space less than 10,000 sf, which doesn't garner attention, and larger space tenants weren’t confident enough in the Downtown market. That he says will change in 2006. Harbert agrees adding that, although Downtown rents are on average $15 lower than rents in Midtown, the latest economic incentives packages approved last year, coupled with decreased space in Midtown will help to spur leasing activity in Lower Manhattan.

Copyright © 2006 Real Estate Media. All rights reserved. Reproduction in whole or in part without permission is prohibited.