NEW YORK CITY-Yet another positive assessment has been made of early 2013. Cresa released its first quarter analysis on Tuesday, indicating that New York City is well on its way to recovery. Much like other moments in the recovery though, some indicators were on the upswing while others remained curiously unchanged.
Leasing activity “spiked,” from January through March, according to the report, “nearly doubling year-over-year transaction rates—and yet—availability remained unchanged.” The lack of absorption stemmed from the fact that “tenants are more willing to renew or relocate with the same or reduced size leases, leading to a return of 5.9 million square feet to the market.”
Overall asking rents rose to $58.70 per square foot, according to the release. Yet there was one big submarket that posted a decline: Midtown North. Asking rents fell there to $67.36 per square foot. Perhaps it’s no coincidence then that the area also saw a big uptick in leasing.
More specifically, 49% of all leasing activity across Manhattan took place in Midtown North, Joyce Geiger, senior advisor in Cresa’s consulting group, told GlobeSt.com. Among those deals were the two largest that were done during the quarter: UBS’ renewal and expansion at 1285 Ave. of the Americas, and the Jefferies Group renewal at 520 Madison Ave., she says. Still, an abundance of space—and big blocks of it, for that matter—in Midtown North came on the market in the quarter, according to Geiger.
“Ten blocks of space that are more than 50,000 square feet came on the market in the area, and eight of them were 100,000 square feet,” she says. “It was a feeding frenzy.”
Filling those spaces could take a considerable amount of time, notes Harold Kahn, managing principal of operations. “Midtown North is always going to be attractive to some tenants, but there’s been some softening there. In terms of absorption, there’s going to be quite a period of time before those blocks of space get filled up because not that many tenants are looking for those amounts of continugious space,” he notes. “And if they’re looking for multiple tenants,” he continues, “that could take even longer.”
Meanwhile, the office market is “repositioning itself for success,” through several new trends, according to a summary of the report. Among these are a sharp rise in the amount of shared office space—such as facilities provided by Regus and WeWork; the conversion of office space into residential property and the planned rezoing of Midtown East.
“Regus is just gobbling up space, and WeWork is trying to orient itself to technology and media companies,” Kahn says. When it comes to conversions from office to condos, activity we’ve seen this year is just the beginning, he theorizes. “We expect that’s going to continue because the demand is quite high for residential options close to established work areas.”
The Midtown East rezoning also will have an impact on the city’s office supply, according to Cresa. “Right now, it’s difficult for the area to compete with a Hudson Yards or Brookfield, which is all sparkling new inventory,” says Kahn. “But if the Midtown East landlords make the right investments in their properties, they can present some attractive alternatives.”
Adds Geiger, “I’m sure many of the buildings [in Midtown East] are going to be taken down and replaced with shiny new buildings. We’re about to experience a sea change.”