Leasing by Dot.Coms Cooling After Strong 2000 Start

Internet companies led the way leasing space in the first half of 2000, according to a survey by Insignia/ESG. The dot.coms signed up for 3.5 million sf, 20% of the total, compared to 404,197 sf at mid-1999. Leasing activity has cooled appreciably after investors disposed of many of their on-line holdings in the spring. Across the board, however, the real estate market maintained its resiliency, with 17.3 million sf of space taken by the end of June. This compares with 13.1 million sf for the same six-month period last year.

“Demand for Manhattan office space sustained an unprecedented pace in the first six months of the year,” says Joseph Harbert, COO of Insignia ESG’s New York metro region. During July, however, “the market took a breather. Midtown, Midtown South and Downtown had what I would call anemic leasing activity. In fact, in Midtown there was no deal in July over 25,000 sf,” he told GlobeSt.com.

There are two possible reasons for this, he says. “One, it could be a signal that there’s some resistance to being out in the market because of pricing.” More likely, he thinks it’s just a breather. “People ran fast and furious and their deals closed in the first six months. It’s part of a normal summer slowdown. Deals are harder to close now. Principals aren’t around,” he notes.

Telecommunication firms and advertising agencies were among the more aggressive is signing for space. Telecoms took more than 1.6 million sf, nearly double the 832,744 sf they leased in 1999. Ad agencies went from 401,315 sf last year to nearly 1.3 million sf in 2000.

Sectors that took less space include New York City and State government agencies and the garment industry. Agencies fell from 959,933 sf to 547,380 sf, the clothing/textile sector went from 631,901 sf to 270,633 sf.

Despite the cutback in space being leased by Internet firms, Harbert thinks that while there will be some falloff, “it’s not going to be dramatic.” For all of 2000, he predicts the dot.coms will account for 13% to 14% of all space leased here.

The survey was based on tracking leases of more than 10,000 sf in the Insignia/ESG database of 662 buildings, a total of more than 352 million sf.