Class A Leasing Goes from Bad to Less Bad
Dana Rubinstein Sept. 15, 2009, 7:39 a.m.
Manhattan’s high-end leasing market has gone from bad to slightly less bad.
The Class A vacancy rate, for example, fell from a bad 12 percent in July to a slightly less bad 11.8 percent in August, according to a monthly report from Colliers ABR. Accordingly, average asking rents for Class A space rose a whopping 19 cents, from $64.17 per square foot in July to $64.36 in August.
Don’t get too excited.
“I think it might be somewhat of a temporary reprieve,” said Robert Sammons, Colliers ABR’s research managing director. “I think it’s going to get a little worse before we start to see constant, very slight improvement, because we still have some large blocks of space out there that are not in our vacancy rate numbers yet.”
Among the large blocks that will, like a collagen shot to the lip, plump the vacancy rate: Macklowe Properties nearly complete new building 510 Madison Avenue, with more than 300,000 available square feet, and SJP Properties’ nearly complete 11 Times Square, which, unless there’s an imminent lease signing, will contribute 1.1 million square feet to the vacancy rate.
By submarket, midtown and downtown outperformed midtown south in August. The Class A vacancy rate in midtown decreased from 13.6 percent in July to 13.5 percent in August.
“The news would have been better except for one large block of sublet space added in the Rockefeller Center submarket—specifically 203,000-sf at 1301 Avenue of the Americas from Dresdner Kleinwort Wasserstein which intends to consolidate within the portfolio of its parent firm Commerzbank,” wrote Mr. Sammons. In keeping with that meager vacancy decline, there was a meager 52-cent asking rent increase, from $68.24 in July to $68.76 in August.
Downtown’s numbers were surprisingly good thanks to Goldman Sachs, believe it or not, which withdrew 200,000 square feet from the market at One Liberty Plaza. That reduced the Class A vacancy from 8.4 percent to 8.2 percent. However, Mr. Sammons noted that Goldman still intends to place 1.5 million square feet at 85 Broad Street on the market when it relocates to its shiny new digs at 200 West Street. Unlike in midtown, downtown asking rents fell further, from $47.71 a square foot to $45.97 a square foot. Rents haven’t been that low downtown since September 2006.
Meanwhile, in midtown south, the overall vacancy rate rose from 13.9 percent to 14.1 percent, “equaling the post-9/11 high set in November 2002 and the highest since the 15.2 percent in July 1995.” The vacancy rate for Class A space—which represents only a small portion of midtown south’s office market—fell from 7.2 percent to 6.9 percent, while the vacancy rate for the bulk of the largely Class B and Class C market increased. The overall average asking rent fell from $41.31 a square foot to $40.61.