Sublease Availability Ticks Upward

NEW YORK CITY-Sublease space in Manhattan reached 12 million square feet at the end of 2008 and is expected to keep growing, according to newly issued market reports. One of those reports, from Jones Lang LaSalle, says four million square feet was added to the sublease supply over the past 18 months, a rise of 50%.

The February market snapshot from Colliers ABR says that class A sublet availability increased by approximately 500,000 square feet during the month, closing February at 9.5 million square feet, the highest level in nearly five years. Class B sublease space jumped 118% in a year, according to Colliers.

“While layoffs were announced throughout 2008, sublease options did not begin coming to the market until the latter part of the year,” says James Delmonte, VP and director of research with JLL’s New York office, in a release. “We anticipate Manhattan will see rising levels of sublease space into at least midyear 2009.”

CB Richard Ellis’ Manhattan Snapshot, issued on Thursday, puts Manhattan’s overall availability rate at 12.5% in February, with a direct vacancy rate of 8.3%. The availability rate shows a slight uptick from January’s 12.3%, notwithstanding a single big block of space–the 600,000 square feet at 685 Third Ave. that Pfizer will continue to occupy–coming off the market.

In Midtown, the availability rate has increased from 8% a year ago to 13.2%, Midtown South’s availability showed a year-over-year increase from 10.7% to 13% and Downtown’s availability rose from 7.6% to 10.1% over 12 months, according to CBRE. The vacancy rate of 8.9% in Midtown South is higher than the 8.3% in Midtown. Downtown fares best in this regard, with a vacancy rate of 7.7%

In the 18 months measured by JLL in its new report, Manhattan leasing activity waned “significantly” as sublease space increased, falling by nearly 41%. Manhattan posted 4.4 million square feet of leasing activity at year-end 2008 compared to 7.5 million square feet in deal volume in the second quarter of 2007.

Nationally, JLL found that leasing volume across the US fell by 43.9% since the Q2 ’07. In Q4 ‘08, leasing activity totaled 27.3 million square feet across all markets tracked by JLL, a decrease of nearly 12.5 million square feet in three months or a 31.3% backslide nationally.

However, as CBRE’s report indicates, the pace of decline in Manhattan slowed somewhat between January and February. Leasing activity was 920,000 square feet in January and 910,000 square feet in February, according to CBRE. Negative absorption fell sharply from 4.2 million square feet in January to 700,000 square feet last month.

In aggregate, 1.7 million square feet were returned to the market in February, compared to the 3.7 million square feet put back on the market in January, according to Newmark Knight Frank. The average asking rent dropped 1.5% to $51.27 per square foot from $52.08 per square foot in January, a decline Newmark calls modest compared to the 5.7% drop in January from the previous month. CBRE’s figures put the average asking rent at $59.10 per square foot, down from $69.56 a year earlier.