was the biggest of several large
renewals in Q2.
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NEW YORK CITY-Although Manhattan office leasing has rebounded from the doldrums of the year’s first quarter, the uptick in volume wasn’t enough to fend off an uptick in the availability rate during Q2, Studley and Avison Young said in reports this week. Uncertainty over the outcome of the presidential election, and the ongoing European debt crisis, may be staying tenants’ hands for the moment, according to Avison Young. However, the firm, which recently established a New York City office, expects an increase in leasing activity at year’s end.
“While the positive direction of local employment data is encouraging, a sustained market recovery is likely to begin in mid-to-late 2013 when steadier job growth is anticipated,” James Delmonte, Avison Young principal and VP of research, New York City, says in a release. “Spikes in rental rates, and longer term rents, are possible in Midtown by mid-to-late 2014 given the lack of new construction being delivered to the market over the next couple of years.”
Noting the “familiar rut” that recovery in the US economy has fallen into recently, Studley observes that New York has powered ahead of the nation in general. “Overall employment reached its highest level ever earlier this year, surpassing the prior peak attained in 1969,” according to Studley’s Q2 report. “New York City and Silicon Valley are the only two markets that have regained all of the office-using jobs lost in the latest recession.”
However, the firm adds that Manhatan leasing in New York City “falls well short of activity in Silicon Valley.” While tenants in the nation’s top tech-industry market are making “pre-emptive strikes” on newly developed space, their East Coast counterparts are competing for space in Manhattan “but mostly within the narrow confines of Midtown South. Market conditions in New York City are spotty at best as core consumers of office space—banks, law firms and other professional/business services companies—proceed cautiously.”
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Big renewals were a major market driver in the first half of 2012, including four in Q2 alone. Viacom renewed and expanded to 1.6 million square feet at SL Green Realty Corp.’s 1515 Broadway in April, while Morgan Stanley similarly expanded from a sublease at Brookfield Office Properties’ 1 New York Plaza into a 1.2-million-square-foot direct lease there. Citigroup stayed put in 475,000 square feet at Boston Properties’ 601 Lexington Ave., and Random House opted for an early renewal of its 361,000 square feet at SL Green’s 1745 Broadway.
Studley sees global worries as less of a factor in space occupiers’ cautious attitude generally. “A few tenants may be holding back as concerns about the shaky economy, looming financial sector reform and the outcome of this fall’s election provide cause for caution,” according to Studley’s report. “Nevertheless, companies are not immobilized—they are picking their spots. Interest in appropriately priced quality product in high-caliber buildings with efficient floorplates, prime views and established landlords is strong.”
Vacancy rates across Manhattan and its three submarkets changed little between Q1 and Q2, according to industry data released this week. Jones Lang LaSalle put Midtown’s Q2 vacancy at 11.5%, the same as that for Q1, and Midtown South’s vacancy rate was similarly flat at 7.6%. Downtown’s ticked upward from 9.6 to 9.8%, an increase that Avison Young attributed in part to the addition of more than 500,000 square feet at Silverstein Properties’ 4 World Trade Center.
Studley noted that demand in Midtown and Downtown lately “has not been strong enough to absorb the new product that is looming on the horizon.” The firm noted that Manhattan’s overall availability rate rose by 0.4 percentage points to 11.1% in Q2 “due largely to the addition of several new properties that are expected to deliver in the next 12 months.”