Commercial Real Estate:
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Positive Momentum
Sustains the Market’s Gains

The overall availability of office space in Manhattan inched a little higher in the second quarter to 13.8 percent from 13.6 percent in the first quarter of 2010, and 13.4 percent in 2009’s second quarter. (The availability rate, you may recall from past columns, is a measure of vacant space and space that is currently occupied but can be made available for lease.)

By Peter Shakalis

This modest increase was due to the continued weakening in the Downtown market where the availability rate reached 16.4 percent by the end of the second quarter, the highest of all the Manhattan business districts.

While Midtown South’s availability rate also increased to 11.7 percent, other measures of the Midtown South market indicate that will remain upbeat. This area of Manhattan joins the Midtown North market in continued improvement. In Midtown North, the availability rate for space declined to 13.3 percent from 14.2 percent in the first quarter of 2010. The vacancy rate, which measures the amount of space that is vacant, declined in both the Midtown North and Midtown South markets.

In Midtown North, the vacancy rate is down to 7.4 percent from 7.7 percent in the first quarter of 2010. For the Midtown South market, the vacancy rate reached 5.5 percent by the end of the second quarter from 5.8 percent in the first quarter. The Downtown market moved in the opposite direction however, with the vacancy rate increasing to 8.4 percent from 7.5 percent in the first quarter. The same bifurcation appeared in rents.

2Q 2010 Capital Market Developments

Four transactions closed during the second quarter of 2010, resulting in a total transactional volume of eight properties for the first half of this year. This activity is an improvement over the 2009 doldrums when only three transactions closed during the first half of the year. Total sales volume for 2010 is $1.2 billion compared to $950 million in the first half of 2009. Two Midtown Class A buildings traded during the second quarter. HSBC’s headquarters building at 452 Fifth Avenue traded for $330 million or $382/sf, a sale/leaseback that was negotiated in mid-2009. SL Green purchased 600 Lexington Avenue, a core plus asset, in a joint venture with the Canada Pension Plan Investment Board for $193 million or $636/sf, from Hines Interests.

Two value-added Midtown Class B buildings also traded during the quarter, both to foreign buyers. Carlos Slim Helu purchased 417 Fifth Avenue from the Moinian Group and Goldman Sachs for $140 million or $340/sf. Malzoni Group, a Sao Paolo based company, purchased 145 East 57th Street from Ashkenazy Acquisition Corporation for $31 million or $544/sf. The building, which features an attractive retail location, will become mostly vacant by September, 2010 when Hammacher Schlemmer’s net lease expires.

The sales market has seen an increase of offerings in the past quarter. Five properties are under contract and nine buildings are on the market. Sellers are capitalizing on the signs that the market is strengthening. Lenders and special servicers are continuing to deal with mortgage defaults by frequently opting to offer extensions or debt restructuring rather than taking back the property. This process is likely to continue as a number of large loans that were originated at the height of the market will be coming due during the next two years.


Peter Shakalis is a Director at
FirstService Williams Real Estate

©2010 NEOCORP MEDIA









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