12/03/08

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Fewer lookers check out space

While leasing activity ticked up in March from the previous month, it is hard for commercial brokers to remain upbeat: They say they are doing fewer showings to future tenants.

Manhattan showed a slight increase in leasing activity, rising to 1.52 million square feet in March from 1.32 million square feet the previous month, according to a market report from brokerage CB Richard Ellis. It is higher than the 1.42 million square feet leased in March 2007.

"It's not like there is zero activity and dire straits; there is still activity in the market," said Grant Greenspan, managing director in charge of leasing for the Kaufman Organization. "The difference is that now, it is all the more difficult to find potential customers."

Abraham Hidary of Hidrock Realty said the market for smaller spaces, 10,000 square feet and under, while not hit as hard as the market for larger spaces, has shown a slowdown, though it is still moving relatively healthily. Hidary handles three buildings with spaces in that range.

"We had 40 or 50 space showings in March, down from 100 in February. There are [fewer] interested parties, but still enough for our needs," he said. "But I would say it is probably still to get worse."

Greenspan said that the drop in showings has driven some landlords to be more receptive to the brokerage community, including offering incentives such as lunches, giveaways and parties, to create buzz about a building with vacancies.

He predicted that a slowdown in the market could last as long as 24 months from January, when his firm first felt its effects. Because the onset of the slowdown lagged behind the economy by about six months, he believed that recovery will take around that much longer as well.

The borough's overall vacancy rate increased slightly, to 5.5 percent in March from 5.2 percent in February, according to CBRE's report. The vacancy rate was 5.0 percent in March of 2007.

Matthew Astrachan, executive vice president at Cushman & Wakefield, said he believes that less sublease space will come to the market in 2008 than in previous slowdowns because one of the biggest tenant sectors, financial services companies, has "wised up" after previous recessions.

"[Financial services companies] used to have 4 or 5 percent vacancy in their own portfolio just to account for the ebb and flow of employment," Astrachan said. "This time around, most of them have reduced their working vacancy to below 1 percent, and as a result, their liquidity of space has increased, even during [a period of layoffs]."

The average asking rent in Manhattan continued to increase, to $70.72 per square foot in March, up from $69.56 per square foot in February and $58.88 per square foot in March of 2007, according to CBRE.


Midtown

Midtown experienced an uptick in leasing activity, to 1.13 million square feet in March from 1.02 million square feet in February, according to CBRE's report. Leasing was also up 32 percent from 770,000 square feet in March of 2007.

The report also showed that the vacancy rate remained flat in March from the month before, at 4.7 percent. It was up slightly from 4.4 percent in March of last year.

Midtown's average asking rent increased to $85.61 per square foot in March, up from $84.27 per square foot the previous month, and an 18.5 percent increase from $72.25 per square foot in March 2007.


Midtown South

Midtown South saw a 77 percent increase in leasing activity, to 230,000 square feet in March from 130,000 square feet the month before, according to CBRE's report. The market was also much more active than in March 2007, when leasing activity was 140,000 square feet.

The vacancy rate rose incrementally to 6.6 percent in March, from 6.5 percent in February, according to CBRE. Vacancy was up from 4.4 percent in March 2007.

The average asking rent in Midtown South was up 21 cents to $53.15 per square foot, from $52.94 per square foot in February. It increased 28 percent from $41.43 per square foot in March 2007.


Downtown

The gap between rents in Downtown and Midtown is finally beginning to widen once again, after a two-year period during which Downtown rents rose faster and the gap closed, according to Barry Hersh, clinical associate professor at New York University's Real Estate Institute.

While the average asking rent still increased Downtown, it inched up just 9 cents, compared to the $1.34 increase seen in Midtown, CBRE's report showed.

"When the market was at its absolute height, in 2006 and 2007, the gaps became smaller," Hersh said. "Now that the market is more balanced, there's more of a differential in Downtown again … closer to the historic gap."

The average asking rent in Downtown was up to $49.00 per square foot in March, from $48.91 per square foot in February and $42.76 per square foot in March 2007.

Leasing activity remained flat in Downtown, at 160,000 square feet in both March and February 2008, down from 500,000 square feet in March 2007, according to CBRE.

The vacancy rate jumped 1 percent to 6.7 percent in March, from 5.7 percent in February. Downtown's vacancy was 6.8 percent in March 2007.