Downtown fueled by bank lease

Real Estate Weekly, March 6, 2002

Fueled by Bank of New York's 821,000-square-foot month-to-month lease at 15 Broad Street, the Downtown office market recorded a robust month with activity totaling 1.07 million SF - just shy of the 1.17 million SF leased in January 2001. Bank of New York, displaced from 101 Barclay St. after Sept. 11, is taking the Broad Street space for up to 18 months, until it is able to move back into its Barclay Street headquarters, most likely beginning after midyear. The bank also took two floors (37,000 SF) at 20 Broad St. on a more permanent basis and is reportedly ready to give, up its temporary space in New Jersey.

In Midtown, leasing activity totaled 1.15 million SF, a 16% increase from the 990,000 SF leased in January 2000. Net absorption was still in the red, however, at negative 880,000 SF -- an improvement nonetheless from negative 1.09 million SF -a year ago. While sublease space accounts for 40% of Midtown's available supply, the tide of new subleases appears to be subsiding.

The supply of subleases has remained steady over the last three months; available direct space, however, has continued to increase.

In Midtown South leasing equaled the previous January's total of 460,000 SF. Two buildings were removed from inventory, since they were converted for: non-office use: 890 Broadway (144,000 SF) is center for dance and theater, and 62 Cooper Square houses residential condominiums.

In addition, renovations at 100 West 33rd St., the former Manhattan Mall, increased the building from 350,000 to 1 million SF, of which 800,000 SF is office space.

Highlights of market activity in January include:

* Average asking rents were up in Midtown, but dropped slightly in Downtown and Midtown South. Downtown rents fell $0.79 per SF to $40.76 per SF. Midtown saw a $0.27 increase to $59.17 per SF, and Midtown South fell $1.90 to average $38.33 per SF.

* As the short-lived dot-coin leasing boom of 1999-2000 fades into history, the Midtown South market -- a major beneficiary of that boom -- is undergoing an ongoing trend of price adjustment in rents.

* With a high supply of sublease space available in all three Manhattan office markets, a considerable amount of space is being listed without asking rents: 39% in Downtown, 31% in Midtown and 30% in Midtown South.

* Availability increased in all markets. Downtown's availability increased 1.5 points to 13.4 percent. Midtown rose three-tenths of a percentage point to 8.6 percent and Midtown South's rate grew by 0.6 points to 11.6 percent.

Strong activity totaling 1.07 million square feet in January, down just 9 percent from a year earlier, provided a solid start to the year in the Downtown marketplace. Still, availability remains on the rise. Nearly 1 million square feet of new available supply surfaced in January.

When coupled with the aforementioned inventory reductions, the added space resulted in a 1.5-percentage-point increase in the availability rate to 13.4 percent -- the highest recorded in Downtown since June 1998.