The Leasing Boom, Fact From Fiction
Tom Acitelli Sept. 21, 2009, 6:36 p.m.
Between bites of soft-shell crab and tempura-battered shrimp at Aureole, the sleek new Charlie Palmer kitchen affixed to the ground floor of One Bryant Park, brokers from the Durst Organization allowed themselves a few celebratory wine toasts.
A clink here for global trading firm Instinet, which signed a deal earlier this month for 107,000 square feet at 1095 Sixth Avenue; and another there, in celebration of the decision by Bank of America to pull 500,000 square feet off the market at the very building where all the merry revelry was taking place that night. And another and another and, really, why not?
“What all the brokers were saying is, ‘I’m glad you didn’t have this party six or eight weeks ago,’” said Durst Organization co-president Jody Durst, who merely had to zoom from his 49th-floor office to get to the Sept. 10 soiree. “Because there wouldn’t have been anything good to talk about.”
Indeed, from the Durst Organization to Rudin Management, and from CB Richard Ellis to Cushman & Wakefield, brokers say they have witnessed a whispered but well-appreciated uptick over the past three months, thanks in no small part to renewed confidence in the economy, lower rents and the cyclical nature of leasing.
Since early this summer, in fact, brokers have watched big-name and small-money tenants alike take a seat on the real estate roller coaster, which appears to be heading upward. Emboldened by rents that have decreased, on average, by $19 a foot since last summer, some short-term tenants are now swallowing 10- and 15-year contracts while others are relocating, albeit to smaller offices.
While many leasing agents suggested the uptick might have begun as early as April, only the past two months have surpassed 2008 numbers, with August delivering the biggest gains. In that month alone, leasing activity in Manhattan jumped from 1.06 million square feet in 2008 to 1.8 million in 2009, for an increase of 740,000 square feet.
July, meanwhile, saw a 482,000- square-foot spike as leasing in Manhattan climbed from 1.7 million square feet in 2008 to 2.2 million in the same month in 2009, according to CB Richard Ellis.
Among the major sectors, downtown Manhattan saw the biggest gains in August, with 430,000 square feet inked last month compared to just 130,000 for the same month last year.
ALTHOUGH MANHATTAN VACANCY rates saw a small decrease last month—from 12 percent in July to 11.8 percent in August, according to monthly data by Colliers ABR—most real estate experts predicted those numbers wouldn’t plunge significantly anytime soon.
“It’s what I call shifting the puzzle,” said Paul Amrich, an executive vice president at CB Richard Ellis, who noted that summer, historically, is the slowest time of the year for real estate activity in New York City. “You’re not going to see the vacancy rate drastically go down, but there was a flurry of deals in July and we saw the pendulum swing the other way.”
Whether it’s an anomaly, brokers don’t seem to care, as long as the deals keep flowing. Earlier this month, China’s largest investment bank made its intention to move west official when, helped out by CB Richard Ellis, it inked a six-year lease at 350 Park Avenue, where it will occupy 8,100 square feet.
CBRE also finalized a deal in August with retail clothier Gap for a 20-year lease at 40 Worth Street. The 265,083- square-foot lease is the largest this year and bodes well for the coming months.
But the gust of deals over the past few months may have much more to do with cheap rent than anything else, said brokers, who insisted that Manhattan remains very much a tenant’s market.
“What’s happening today is the rents are 20 to 25 percent lower than they were in 2008,” said Cushman & Wakefield vice president August DiRenzo, a real estate veteran who recently inked a deal for Cablevision to relocate some of its offices in midtown. “So it’s a very good market for tenants right now.”
NOWHERE WAS THIS MORE evident than midtown, where rents plunged from an average of $86.08 per square foot in August of last year to $57.94 in the same month this year, according to data compiled by CBRE. The year-over-year change was similar in July.
In downtown Manhattan, meanwhile, rents dropped less drastically, but still dramatically, from $50.17 a foot on average in August 2008 to $40.20 just last month.
Mr. Amrich, for one, believes leasing activity will remain strong through the fourth quarter and continue until at least 2011, when a large number of 10-year leases are due to expire.
“Tenants are saying to themselves, ‘The timing might not be absolutely perfect, but if I strike now I can do pretty well,’” Mr. Amrich said. “That’s the thought process right now that’s driving all of this, I think.”
Rudin Management, too, scored a nice leasing deal with law firm Loeb & Loeb, which decided to expand by 36,000 square feet at its already sizable 345 Park Avenue headquarters. The firm inked a lease that will allow it to occupy the 12th floor of the Emery Roth–designed building in addition to space it already rents on floors 18 through 20, for a total of 155,000 feet.
The law firm, which had been a subtenant of Bristol Meyers, signed a 20-year lease, one of several of that length Rudin has stamped since April.
“It’s happening for a number of reasons,” said Rudin Management president William Rudin, who added that in the past two weeks, his team has sent out more than a dozen proposals or counteroffers on deals scaling as large as 500,000 feet. “The stock market turned around in March for one, but the perception that the world wasn’t coming to an end helped, too.”