Leasing Velocity Dips in October

NEW YORK CITY-Office leasing activity throughout Manhattan last month was solid rather than spectacular after a busy third quarter, according to market reports. In Midtown, for example, leases totaled 910,000 square feet in October, according to CB Richard Ellis, marking the first month since May that volume failed to reach the one-million-square-foot mark. Sixty-two percent of the activity in Midtown for October was in smaller deals of 25,000 square feet or less.

Year-to-date leasing activity in Midtown totaled 8.84 million square feet, off 17% from the same period in 2008, according to CBRE. A similar year-over-year percentage decline was seen in Downtown, while the month’s volume of 250,000 was 38% less than the five-year monthly average of 400,000 square feet.

Midtown South’s 270,000 square feet of leasing in October was on pace with the five-year monthly average of 280,000 square feet, says CBRE. Nearly half the month’s velocity came from a single deal: STV’s 116,944-square-foot renewal and expansion at 225/233 Park Ave. South. However, the YTD volume of 1.68 million square feet was off 29% from the 2.37 million square feet leased in the first 10 months of ’08.

On the other hand, vacancy rates appear to be stabilizing. Jones Lang LaSalle says Midtown vacancy ended October at 14.2%, nearly flat from the September rate of 14.1%. In Midtown South, vacancy dropped to 11.1% in October from 11.4% the previous month, largely on the strength of activity in the class B sector, according to JLL.

Downtown’s vacancy remains well below Midtown and Midtown South at 9%, JLL says. At least for now–a report from Colliers ABR describes the Downtown market as being in “a holding pattern, hoping to skirt the worst of it but quite aware that several major blocks most likely will enter availability in the near and not so near term,” including Goldman Sachs, Depository Trust & Clearing Corp. and Merrill Lynch.

Manhattan’s three office markets each told a different story when it came to the absorption of space during October. In Midtown, according to CBRE, there was 470,000 square feet of negative absorption during the month. That brings the YTD absorption tally to negative 7.35 million square feet, compared to 5.31 million square feet between January and October of last year.

CBRE says Midtown South saw negative absorption of 330,000 square feet, bringing its YTD tally to 3.24 million square feet—nearly four times the 850,000 square feet of negative absorption in the market as of Oct. 31, ’08. As a result, Midtown South’s availability rate of 15.3% exceeded Midtown’s, which ended the month at 15.1%, for the first time in a year. Downtown, the 20,000 square feet of positive absorption was nearly flat from September, and the availability rate of 11.8% was also unchanged from the previous month, says CBRE.

Across Manhattan, the average asking rent for class A product dropped 1.2% from $63.90 per square foot in September to $63.12 per square foot last month, according to Colliers. Robert Sammons, director of research at Colliers, writes that while asking rents have almost consistently been pushed lower each month since May ’08, the rate of decline has been easing since May of this year. From May onward, class A rents have fallen an average of 0.8% each month as opposed to an average drop of 2.4% each month for the 12 months prior to that, Sammons notes.

On a market-by-market basis, the rate of dropoff for class A rent is more varied, according to JLL figures. Pricing in Midtown and Midtown South was off “sharply” in October, declining $4.36 per square foot to $65.69 in the former and $6.68 per square foot to $43.74. In keeping with the shallower decline in Downtown’s class A rents since the peak, the month-to-month falloff was smaller: $1 per square foot to $41 at the end of October.