Manhattan Office Climate Favors Tenants, Buyers

The first quarter of 2009 is on the books, and a wide range of reports published this week agree on at least two things. First, bright spots remain scarce in the Manhattan office market, and second, that situation is unlikely to change much for the next few quarters. Among the reams of data released this week, no indicator is more striking than Manhattan’s investment market. During the first three months of the year, just $1.1 billion in office investment sales valued at $10 million or more closed in Manhattan, estimates Cushman & Wakefield Inc. That marks a half billion-dollar drop from the closed sales registered during the first quarter of 2008. To put that it perspective, a number of building sales exceeded $1 billion during the past several years. Perhaps even more telling, the pipeline of office sales are under contract has dwindled from $3.5 billion a year at this time to only $100 million. New York City metropolitan regional chief operating officer head Joseph Harbert noted that two more prime properties are coming to market: 1330 Sixth Avenue, a Midtown Manhattan tower, and 70 Pine Street, which is located Downtown. “A period of slow activity will not be maintained for long because there is pent-up capacity (among investors),” Harbert said at a press briefing Tuesday. Service firms also took the measure of Manhattan’s office leasing market this week and found few positive trends. Though the exact numbers varied, the trend is toward rising vacancy and negative absorption and falling asking rents. Midtown is taking the biggest hit of Manhattan’s three submarkets, in large part because financial services firms are returning a large volume of space to the market. Last month alone, four Midtown financial services tenants added vacant space ranging from 114,000 square feet to 400,000 square feet, noted Colliers ABR Inc. That helped raise Midtown’s Class A vacancy rate to 12.2 percent, its highest level since August 1996. Indeed, owners have been busy re-pricing Midtown Manhattan office assets since last fall. Asking prices for some 30 million square feet have been adjusted downward, according to an estimate by CB Richard Ellis Inc. Last month prices slipped by the smallest margin since last fall—11 percent, compared to 17 percent in both January and February, explained John Powers, the firm’s New York Tri-State region chairman, during a briefing on Wednesday. About 10 million square feet of that inventory is sublease space, but CB Richard Ellis estimates that 7 million square feet of the total is practically unmarketable because it includes blocks of space that are too large to attract tenants for the short lease terms available. At a time of generally rising vacancy and falling asking rents, the Downtown submarket offered most of Manhattan’s first-quarter highlights. In March, the district knocked 20 basis points off its Class A vacancy rate to finish the month at 7.5 percent, according to Colliers ABR. And total leasing velocity Downtown for the quarter beat the first three months of 2008 by nearly 150,000 square feet to end the first quarter at 920,000 square feet, reported Cushman & Wakefield.