Weakest Leasing in 18 Years: Experts
Leasing activity plummeted during the first quarter of the year, by some preliminary estimates by as much as 40 percent. Peter Hennessy, president of the New York region for the brokerage company Cassidy Turley, said that data collected by his company is showing that deals were down so much in the first three months of the year, it is the slowest opening quarter in 18 years.
According to brokers polled by The Commercial Observer, there are a host of explanations for the drop, from the fact that January and February are normally slow months to the fact that economic uncertainty continues to permeate, especially amid a still-roiling debt crisis in Europe and a nearing presidential election.
“It’s really kind of surprising,” said Mr. Hennessy. “We had a very slow fourth quarter and that bled over. I think that the market bounced back last year and landlords raised rents and then when things started to become uncertain, there was a bit of sticker shock at the higher prices and that helped prompt the slowdown.” While underlying causes abound, in a recent conversation with The Commercial Observer, Joseph Harbert, Cushman & Wakefield’s chief operating officer, pointed out one of the more obvious components in the slowdown; an absence of big deals. “We had a spectacular quarter last year, a number of big deals closed, including Bloomberg LP, Li & Fung and the city closed at the World Trade Center,” Mr. Harbert said, referring to a 400,000 square foot, a 500,000-square-foot and a 600,000-square-foot deal respectively.
Not so this year.
Ken McCarthy, an economist at C&W, who has been examining statistics from the first quarter, said that eight deals 100,000 square feet or larger were done in January through March. The tally he said falls well below the 15 big deals that were done a year ago. But eight big deals a quarter is about average and the 15 done a year ago was an extraordinary burst of activity. More telling is the average size of big deals done during the quarter, which falls well below all but recessionary years.
The eight big deals done during the opening three months of the year average 173,000 square feet in size. Last year’s first quarter averaged 254,000 square feet and even the first quarter of 2010, a slow period in leasing, had an average big deal size of 194,000 square feet. Only 2009’s 171,000 square foot average and 2002’s 164,000 square foot average were lower that the current quarter average according to C&W statistics. Both were years in midst of an economic downturn.
Mr. Hennessy said he didn’t expect activity to bounce back immediately.
“The level of activity behind the scenes, the people that are coming to the table and looking at space, we haven’t seen an uptick in that yet,” Mr. Hennessy said. “Space tours and offers are not ramping up so I think that we need to see that increase before deals start getting done.”
Still, Mr. Hennessy offered a fairly optimistic outlook for the year.
“I actually think it’s going to be a decent year,” Mr. Hennessy said. “Things are going to pick up, I think, after the second quarter.”