Weakness in the national and global economy has impacted deal flow. Many companies have put transactions on hold until tenants get a better sense of where the market is headed. With the presidential election in 2012 it may be awhile before certainty returns to the market place.
In spite of this, New York continues to see pockets of deal flow with Midtown South being the hot new submarket, as many tech and digital media companies gravitate to Flatiron and Union Square. September put some wind back into our sails with better than five-year monthly leasing averages for all three Manhattan submarkets. Year-to-date we saw 21.76 million sq. ft. of activity, compared to 17.24 million sq. ft. last year.
Absorption is a key indicator of the market’s health because it measures how much net space has been either added, or subtracted from the city’s pool of vacant space. For Q3 2011 absorption was negative 840,000 for Midtown. We are seeing more sublease space being put on the market, as well as downward re pricing of existing space to lower base rents. I expect this trend to continue as the financial firms react to recent lay offs.
Availability for Manhattan overall is down to 11.2% from 13.3% for the same period last year. Midtown is a bit higher at 11.7%, Midtown South is considerably less at 9.5%, while Downtown’s availability was 11.0% for the month ended September 30, 2011.
Average asking rents rose slightly to $52.00 per sq. ft. for Manhattan. Midtown has the highest average asking rents which were relatively stable at $60.57. This is a bit misleading because rents rose due in part to higher priced space at 330 Madison being put on the market. Midtown South experienced a slight increase for similar reasons, while Downtown saw average asking rents drop by$0.39 to $38.97 per sq. ft.
In sum, the first six months were very strong then July and August came and it felt like someone had hit the “pause button”. September has brought activity back into the market place but there are reasons to remain cautious.. There are a number of troubling economic indicators that could put downward pressure on leasing activity and slow down the increase in average asking rents.. The lack of job growth and continued European uncertainty could dampen current activity.
Downtown’s leasing activity of 460,000 sq. ft. in September topped the five-year monthly average of 330,000 sq. ft. by 39%.
Downtown’s year-to-date 2011 leasing of 4.80 million sq. ft. was more than double 2010’s 2.36 million sq. ft.
The handful of mid-size new availabilities added to the market offset the month’s strong leasing, pushing Downtown’s absorption into negative territory for the month. However, year-to-date absorption was positive 2.13 million sq. ft.- a reversal from 2010’s negative 2.50 million sq. ft.
The overall availability rate inched up 0.1 to 11.0% in September, while the sublease availability rate was static at 1.6%.
Following a $0.34 increase in August to $39.69 per sq. ft., the average asking rent fel $0.39 to $38.97 per sq. ft. in September due to the leasing of high quality space above the average.
LARGE NEW SPACE AVAILABILITIES:
− 188,000 sq. ft. of direct space at 55 Water Street
131,000 sq. ft. of direct space at 125 Broad Street, which was already on the market, but fell within 12 months of tenant possession in September and was therefore reflected in availability statistics
50,000 sq. ft. of direct space at 14 Wall Street
20,000 sq. ft. of PKF Consulting USA sublease space at 29 Broadway
17,000 sq. ft of Cadwalder, Wickersham & Taft LLP sublease space at 1 World Financial Center