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2QT13 Manhattan Office Space Roundup…
Huge news is that sublease supply in Midtown dipped to just shy of 5.6 million square feet, the lowest it has been since third quarter 2008. Midtown may experience a bit of a yo-yo effect over the next several months as some larger firms try to dispose of excess space. Expect to see other tenants trying to take advantage of reduced rents on subleases, which is exactly what happened to AXA Equitable when it placed 287,000 square feet on the market for sublease at 1290 Avenue of the Americas in the first quarter. Three tenants leased all of that space within three months: financial giant Morgan Stanley subleased 148,421 square feet, Sirius Satellite took another 86,877 square feet, and Remy Cointreau leased the remaining 52,611 square feet. All this movement strengthened Midtown and dropped availability 50 basis points to 12.7 percent, as asking rents rose $0.91 from the first quarter to $72.98 per square foot.
Activity in Midtown South in the second quarter was a wash: of the six submarkets that make up the Midtown South market, availability in three submarkets increased and availability in three submarkets dropped. Overall in Midtown South, the momentum continues and availability dropped 10 basis points to 9.4 percent.
The temperature is dropping a few degrees in the Gramercy Flatiron submarket as availability ticked up for the second consecutive quarter, spurred, in part, by the entire building at 114 Fifth Avenue—all 368,557 square feet of it—coming on the market, even though the space is not actually available until May 2014. Higher priced space pushed overall asking rents up, contributing to a $2.20-per-square-foot rise to $64.65. Direct asking rents for the Midtown South market rose by $2.43 to $55.67 per square foot.
The Downtown market’s greatest strength may be its diverse tenant mix. Still home to several financial tenants, a recent uptick in renewal activity among the financial sector could benefit the market. But when compared to the rush of leasing activity Downtown in the first quarter, leasing activity appears to have slowed to a trickle in the second quarter. But that’s only by way of comparison; activity Downtown is still strong—just not as strong as it was.
Hubbard & Reed renewed 200,000 square feet, signing the largest lease for the quarter Downtown. Despite that large lease, the 728,736-square-foot block of space at 180 Maiden Lane that AIG placed on the block weakened the market. That space is not available for occupancy until May 2014, which puts it in competition with other large blocks of space at the World Trade Center and Brookfield Place. Asking rents rose to $45.70 per square foot, a $0.45 increase.
Real Estate market activity prognostication for the second half of the year is more guesswork than trend-based at this point. But if we consider history, once everyone gets back at it with vigor after Labor Day as they usually do, there’s plenty of time for the third quarter to set the pace for an active second-half of the year that matches the first half.