C&W releases third quarter market analysis

Real Estate Weekly, Oct 18, 2000

Cushman & Wakefield's has disclosed the results of its third quarter Manhattan office market report, which will be released later this month.

According to the report, Manhattan class "A" rents are up $16 per SF year-to-date, translating into an annualized increase of 45.1%.

Rents have clearly spiked in Midtown and Midtown South areas -- class "A" rents are up nearly $18 per SF year-to-date in Midtown to $66.68 per SF, while Midtown South class "B" properties continue to experience the most dramatic appreciation in the city at an annualized rate of 62.3%.

Vacancy rates have temporarily leveled off between 3 and 4% in all three Manhattan markets. Midtown vacancy was essentially flat during the third quarter, while Downtown fell to a record-low overall vacancy of 4.0%.

There was a slight increase in Midtown South sublease vacancy, but this is not attributable to the technology tenants. While a number of tech firms are offering their future expansion space for short-term sublease, those properties that are being offered for long-term subleases are for spaces that is mostly occupied by a variety of conventional firms, with only a handful of new economy tenants in the mix, The total amount of sublease space on the market in Midtown South is still very low and remains just above the record-low for sublease vacancy recorded earlier this year.

Summer is typically the slowest season in the Manhattan real estate market. Thus, while the slowdown in overall leasing isn't very unusual, the composition of tenants leasing space during the third quarter differed dramatically from recent previous quarters -- after transacting more than 20 leases for spaces larger than 50,000 SF during the first half of the year, new economy tenants accounted for only two of such leases during the third quarter. Could the newly abstemious appetite of capital markets for technology stocks finally be making its weight felt in the real estate markets?

With the upcoming groundbreaking of Tishman Speyer's 222 E. 41st St., projects under construction in Manhattan will total more than 5.1 million SF, a level which hasn't been seen in a decade. Good news for the overly tight Manhattan market? Not really. All of the projects in the ground are completely pre-leased. While a few speculative projects may break ground in the next 12 months, cautious lenders will avoid financing a project unless it is at least 50% pre-leased. The good news is that some of the tenants moving to new office developments will be vacating their existing locations, freeing up some space for larger tenants in the market. Most of these spaces, however, aren't available for at least 2 more years, and many are already close to signing on new tenants to fill up the future vacancies.