Leasing Falls for Fifth Straight Quarter

NEW YORK CITY—Savills Studley research says deal volume in New York's office market fell to 6.9 million square feet in the first quarter of 2015. It has decreased during every quarter since the fourth quarter of 2013, when it peaked at 12.7 million square feet. The reduced activity is due primarily to more limited leasing downtown, where first quarter volume (1 million square feet) was the weakest since midyear 2013.

This outlook comes from the firm's NYC Q1 2015 report. Also of note from the report:

 ·         Asking rents push higher. The average asking rent for class A space in Manhattan rose by 3.6% to $79.47 as a 5.8% jump in class A asking rents Downtown, offset a decline of 0.8% in Midtown's rate to $85.50.

·         Availability rate inches lower. Manhattan's class A availability rate was unchanged at 12.7%. Decreases in Midtown (-0.4pp to 11.9%) and Midtown South (-0.3 pp to 5.1%) offset a 1.6 pp increase to 17.6% Downtown.

·         Tenants face higher rents, but concessions remain elevated. The report explains that many tenants will encounter more inflexibility regarding initial taking rent in today's market. The good news, however, landlords taking this approach are extending generous concessions in order to secure lease commitments from creditworthy tenants in a timely fashion.

 “Tenants with geographical flexibility can still find affordable spaces, including some that may trade at a discount due to the extended period they have been vacant,” says senior managing director Bill Montana.

“This market offers opportunities to a wide range of investors with divergent holding strategies,” adds senior managing director Craig Lemle.

The report notes that tenants who are flexible geographically, as well as those who have a couple of years remaining on their lease, should continue to find good opportunities – particularly in the class A sector:

Midtown has a fair number of big blocks of existing space in Times Square and Columbus Circle that have been sitting vacant for more than a year with very little action. Some are mis-priced and lack the open and efficient layout that most tenants prefer. Remarkably, space in the new Hudson Yards buildings is priced in the $80-$90 range, on par with the rates in the renewal offer that many Midtown tenants will be confronted with in 2016 and 2017.