Silverstein's 7WTC makes big impression

Real Estate Weekly, Feb 15, 2006 by Linda Barr

Larry Silverstein's 7 World Trade Center burst onto the market last month causing a jump in the city's vacancy rates.

The Manhattan overall rate climbed to 8.9% from 8.7% in December, with the class A figure climbing even higher, to 7.9% from 7.4%, according to the latest figures from Colliers ABR.

The overall Manhattan inventory rose to 439.5 million s/f, with three major buildings added to the market--7 World Trade Center (1.7 million s/ f), 959 Eighth Avenue (856,000 s/f) and 505 Fifth Avenue (275,000s/f).

However, according to Colliers research director Robert Sammons, the latest figures give no cause for concern and could jumpstart the much-anticipated revival in downtown leasing.

"The jump in vacancy rates was not an unexpected occurrence and is something the market will have to work through," said Sammons.

"The introduction of 7 WTC puts it upfront for the market to see for the first time. It will push the point that the space needs to be pushed hard and, eventually, Larry Silverstein will be successful in signing some big deals."

With no new product due to come to the midtown market for at least two years, Sammons said big block tenants will have to look downtown.

"If the economy remains strong and tenants don't give up any space, we are looking at vacancy rates in 4-5% in midtown by the end of year, which is where we were in late 90s.

"There are a number of financial services and law firms currently in the market for large blocks of space and those spaces are few and far between.

"There are a lot of firms expanding instead of relocating, financial service firms especially are expanding, which is good news because it means they are adding employees, and that will tighten the market further this year."

Despite the hike in inventory, Manhattan overall net absorption was positive by just over 1 million s/f in January as the two major buildings that came on-line in midtown were essentially all spoken for.

Not only were new buildings added, but several were removed due to residential conversions, both downtown and in midtown, including 100 Maiden Lane (325,000 s/f) and 485 Fifth Avenue (205,000 s/f).

The average asking rent for Manhattan got a boost in January, with the class A rate climbing to $50.97/sf from $50.64/sf due in part to a major increase downtown where the asking rent for space at 7 WTC ranged from $50.00/sf to $60.00/ sf. According to Sammons, "Rents haven't shot up as much as they did in late 90s. They have been going up slowly, but surely and that's because we don't have the competition between the media firms and financial services that we did back then.

"There's not quite as much urgency. Landlords are with nice, steady, triple A tenants, but the situation may change as the market tightens further and we could see a spike in midtown asking rents."

The Midtown submarket continued to strengthen in January, with its class A vacancy rate dropping to 6.5% from 6.9% in December, the lowest since the 6.4% of June 2001.

Overall net absorption was very strong at 1.6 million s/f due to the previously mentioned completion of new product with very little availability. The class A average asking rent continued to close in on the $60.00/sf figure finishing the month at $59.78/sf up just slightly off from $59.64/sf in December.

Midtown South remained a hot submarket as the overall vacancy rate fell to 8.2% from 8.3% in December and 11.3% one year ago. Net absorption, while not dynamic, was positive for the month at just over 57,000-sf.

The overall average asking rent closed higher in January at $32.65/sf from $32.18/sf, its highest point since April 2002. Downtown, as expected, saw its vacancy rate jump to 12.3% from 9.2% with the opening of 7 WTC and its 1.6 million s/f of available space. The vacancy rate is still lower than the 13.2% figure of one year ago.

Overall net absorption started the year in the red, at negative 644,000-sf. There was a very steep climb in the class A average asking rent as it closed up 17.3% in January at $39.62/sf from $33.76/sf, due completely to the higher pricing at 7 WTC.

Noteworthy January leases included: 11 West 42nd Street, CIT Group's 113,000 s/f new location; 11 West 42nd Street, New York University's 112,000 s/f renewal; 2 Park Avenue, Coty's 75,000 s/f new location; 2 World Financial Center France, Telecom's 24,000 s/f relocation.

Noteworthy January sales included the purchase of 681 Fifth Avenue by Metropole Realty Advisors from Fortunoff for $86 million or $1,650/sf; and the purchase of 307 East 53rd Street by Amerimar Enterprises from Mittman Associates for $15.45 million or $400/sf.

Manhattan Class A Vacancy Rates and Asking Rents

          Vacancy Rate    Average Asking Rent

Jun-00        3.9%
Sep-00        4.5%
Dec-00        3.9%
Mar-01        4.7%
Jun-01        6.2%
Sep-01        7.6%
Dec-01        8.2%
Mar-02        8.7%
Jun-02       10.0%
Sep-02        9.9%
Dec-02       10.7%
Mar-03       11.3%
Jun-03       10.7%
Sep-03       11.2%
Dec-03       11.3%
Mar-04       10.6%
Jun-04       10.5%
Sep-04       10.1%
Dec-04        9.8%
Mar-05        9.5%
Jun-05        9.4%
Sep-05        9.0%
Dec-05        7.4%
Jan-06        7.9%

Note: Table made from bar graph.

Statistics by Colliers ABR