Available office space declines, rental rates increase,
absorption positive in Manhattan at mid-year
The amount of available office space in Manhattan, particularly premium space
in the city's most desirable areas, continued to decline in the second quarter of the year,
according to New York-based Cushman & Wakefield, the world's largest privately held
commercial real estate services firm.
Year-to-date, vacancy rates are down, rental rates are up and absorption is positive, according
to Cushman & Wakefield's mid-year market report. But one of the most watched signs of
market strength, leasing activity, has slowed, finishing below 2004 mid-year levels.
Most significantly, the average size of the city's largest leases (transactions above
100,000-sf) declined by more than 100,000-sf to 198,752-sf at mid-year 2005 from 307,734-sf at
Ken Krasnow, executive managing director and head of Cushman & Wakefield's New York
offices, attributed the slowdown to the fact that "market activity has paused and we may
be at a tipping point."
"Statistically speaking, the market looks relatively healthy," Mr. Krasnow added.
"Although the supply side is balanced, the demand side has grown more tenuous."
The steadily dropping Manhattan vacancy rate -- the lowest since the fourth quarter of 2001--
decreased two percentage points since year-end 2003, registering 9.8 percent at mid-year. Even
modest leasing activity for the remainder of the year could drop the overall vacancy rate to 9
percent, typically the point of equilibrium in the Manhattan market where neither the landlord
or the tenant is perceived as having a negotiating advantage.
At mid-year, the overall weighted asking rent for Manhattan office space rose to $40.80 psf, up
from $39.55 at year-end. Class-A asking rents rose nominally to $48.21 psf, while class-B rents
escalated to $32.54 psf.
Available sublease space was at a three-year low. Sublease class-A asking rents were up more
than $6.00 psf since year-end 2004, from $41.20 to $47.47 psf, due largely to the fact that
higher quality sublease space has become available in recent months.
At the end of the second quarter, the spread between asking rents in Midtown and Downtown
reached its widest margin ever, at nearly $17 psf. The spread is even greater when concessions,
such as free rent, improvements, allowances and incentives are factored in.
The Midtown class-A vacancy rate dropped for the sixth consecutive quarter to 9.2 percent, down
a full point since year-end 2004, and from 11.5 percent, this time last year. The overall
Midtown rate, also at 9.2 percent, declined from 11.3 percent a year ago. The total available
supply dropped by 18 percent to less than 22 million square feet (msf), the lowest level in
three years. Direct class-A space in the Madison/Fifth Avenue submarket, Manhattan's priciest,
reached $72.76 psf, the highest in three years.
A trend toward companies leasing high quality class-A office space continued in the second
quarter with Viacom's lease of 271,014 sf at 1540 Broadway; the McDermott, Will & Emery
lease of 156,435 sf at 340 Madison Avenue; and CIT Group's lease of 130,116 sf at 505 Fifth
The Downtown class-A vacancy rate dropped more than two full percentage points from this time
last year to 11.5 percent - the lowest in more than three years. The decrease was due in part
to two subleases at One New York Plaza totaling 254,353 sf, as well as the Downtown residential
conversion trend. Despite improvement in vacancies, overall rents decreased to $31.20 psf from
$32.25 psf at mid-year 2004, and were down even more significantly from $36.36 psf at mid-year
The shift in Downtown leasing to smaller deals continued in the second quarter, with leasing
activity off nearly one million square feet from mid-year 2004. Positive absorption occurred in
lower Manhattan for the first time since the third quarter of 2001. According to Mr. Krasnow,
"Combined with tax incentives, Downtown remains a smart move for tenants who want to
remain in Manhattan but have been priced out of Midtown."
Downtown benefited heavily due to the fact that few blocks of new space were added to the
inventory. While new blocks of space will be added to the market, including the 1.7-msf Seven
World Trade Center, the prior trend of companies unloading space appears to have
"Although Seven World Trade is currently without an anchor tenant, we should see some
level of commitment made there by year-end," Mr. Krasnow said. "However, without the
city redirecting efforts to Downtown and a renewed commitment to infrastructure, Downtown is in
danger of continuing to lose large scale relocations and not realize its potential to become a
true world-class business environment."
Three blockbuster sales pushed the real estate investment market toward another record-breaking
year. Tishman Speyer purchased 200 Park Ave. from Met Life for $1.7 billon in the largest
single office sale in history. S.L. Green bought One Madison Ave., also from Met Life, for $918
million in what is slated for a partial residential conversion. Equity Office purchased 1095
Avenue of the Americas from Verizon for $505 million.
OFFICE MARKET STATISTICS BREAKDOWN
MANHATTAN 2Q '05 1Q '05 4Q '04 2Q '04
Total Vacancy 9.8% 10.4% 11.0% 11.8%
Sublease Vac. 2.2% 2.4% 2.5% 2.8%
Overall Rent $40.80 $40.28 $39.55 $40.56
DOWNTOWN 2Q '05 1Q '05 4Q '04 2Q '04
Total Vacancy 12.0% 12.3% 13.7% 13.0%
Sublease Vac. 2.3% 2.7% 2.8% 2.6%
Overall Rent $31.20 $31.03 $31.55 $32.25
MT SOUTH 2Q '05 1Q '05 4Q '04 2Q '04
Total Vacancy 9.0% 9.9% 10.2% 11.9%
Sublease Vac. 0.8% 1.0% 1.5% 2.1%
Overall Rent $32.27 $31.53 $31.34 $30.56
MIDTOWN 2Q '05 1Q '05 4Q '04 2Q '04
Total Vacancy 9.2% 9.8% 10.1% 11.3%
Sublease Vac. 2.5% 2.7% 2.6% 3.1%
Overall Rent $47.87 $47.13 $45.98 $47.16
* * *
Founded in New York City in 1917, Cushman & Wakefield
is the world's largest privately held commercial real estate services firm. From its Midtown
Manhattan world headquarters, the firm operates more than 175 offices in 50 countries around
the world and employs more than 11,000 professionals. In addition to office brokerage, Cushman
& Wakefield maintains one of the industry's strongest retail services groups. The firm is
New York City's largest property manager, with more than 52 million square feet of property
under management through its Asset Services division. The company is a leader in investment
sales, valuation, research and other advisory services, available through the company's
Corporate Services group or directly through the firm's Advisory Group. Cushman & Wakefield
maintains eight full-service offices in the New York/New Jersey region. In addition to Midtown
and Downtown Manhattan, Cushman & Wakefield maintains leading metropolitan area offices in
Stamford, Conn., White Plains and Melville, N.Y., East Rutherford, Iselin and Parsippany,
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