Insignia market report: vacancies up in April

Real Estate Weekly, June 5, 2002

Although smaller transactions characterized April's leasing activity in Manhattan, a few unusually large leases in Midtown South and Downtown were offset by huge amounts of sublease space coming back on the market, prompting negative net absorption in all of Manhattan's markets in April. According to Insignia/ESG's May 2002 "i on the market" reports, availability was up in Midtown, Downtown and Midtown South, which in turn caused downward pressure on average asking rents.

In Downtown, Lehman Brothers offered 1.01 million SF of space at 3 World Financial Center for immediate sublease and announced that another 371,000 SF at 1 World Financial Center will be available for sublease as of July. 2004. At month's end, sublease space totaled 54% of all available space Downtown, up from 31% a year earlier. Downtown tallied 735,000 SF of leasing for the month, up from 469,000 SF in March -- and 104% higher than the 360,000 SF leased a year earlier.

Manhattan's largest transaction in April was the United Federation of Teachers' (UFT) lease of 367,000 SF at 52 Broadway. The UFT has announced it will combine this location with the 285,000-SF building it is purchasing next door at 50 Broadway to create a Downtown "corporate campus" for its employees in a consolidation move from three locations in Midtown South.

In Midtown, a net addition of 545,000 SF of sublease space in April lifted sublease space to 43% of all available space, up from 41% a month earlier and 27% a year earlier. New offerings in Sixth/Rock Center led the pack, including 144,000 SF by Bank of New York (BONY) at 1290 Avenue of the Americas, which in turn caused the Sixth/Rock submarket's availability rate to jump from 5.9 to 7.1% during the month.

BONY also returned substantial space to the Midtown South market. BONY had leased the space, totaling 591,000 SF in six locations, to house employees who had been displaced after Sept. 11. The employees will move back to the company's Downtown headquarters at 101 Barclay St. and 1 Wall Street. Despite more than 600,000 SF of leasing for the month -- including two transactions totaling almost 400,000 SF -- Midtown South's availability rate rose to 12%.

Highlights of Insignia/ESG's May "i on the market" reports include:

* Negative net absorption returned to all three markets in May. Downtown registered negative 548,000 SF, Midtown saw negative 444,000 SF and Midtown South recorded negative 263,000 SF.

* Availability in Downtown increased 0.6 points to 14.8%. Midtown's availability rose 0.2 points to 9.5%, and Midtown South's rate grew by 0.4 points to 12%.

* Average asking rents in Downtown declined $0.32 in April to $39.15 per SF. Midtown's average asking rents decreased $1.69 to $55.42 per SF, and Midtown South saw a $0.36 drop to $37.04 per SF.

According to' Insignia/ESG's May 2002 "i on the market" report for Downtown:

For the year to date (YTD), leasing activity in Downtown totaled 2.48 million SF, a 36% increase over 1.82 million SF leased during the same period in 2001; In addition to the UFT transaction, which was the largest long-term lease signed in Manhattan this year, the Police Pension Fund's lease of 56,000 SF at 233 Broadway boosted the City Hall submarket's activity to 15% of Downtown's monthly total. With the new sublease offerings, the relatively small World Financial Center submarket's availability rate more than doubled during the month, from 12.4 to 24.9%. Market-wide, prospective tenants had a broad, choice of larger contiguous units in Downtown: 12 blocks between 100,000 and 250,000 SF and seven blocks larger than 250,000 SF. In a departure from traditional standards, and fueled by large sublease offerings in the World Financial Center, Post-1980 buildings had a higher availability rate than their older, less technology-enhanced counterparts in Downtown.

According to Insignia/ESG's May 2002 "i on the market" report for Midtown:

Smaller transactions continued to drive Midtown activity, as they have since the beginning of the year. Activity totaled 635,000 SF in April, a 6% decrease from 676,000 SF in March and 61% below the 1.64 million SF leased in April 2001. Only two transactions exceeded 50,000 SF: the law firm of Wilmer, Cuttler & Pickering took 71,000 SF at 399 Park Ave.; and advertising firm Kallir, Philips, Ross, Inc. renewed 51,000 SF at 333 East 38th St. Within Midtown, availability rates varied from a low 5.1% in the Times Square/West Side submarket to 16.4% in the Plaza submarket. Four contiguous blocks larger than 250,000 SF remain available from last month: 340 Madison Ave. (458,000 SF), 9 West 57th St. (307,000 SF), 380 Madison Ave. (294,000 SF) and 40 West 57th St. (283,000 SF). In addition, there were 14 contiguous units available between 100,000 and 250,000 SF.

According to Insignia/ESG's May 2002 "i on the market" report for Midtown South:

Spurred on by two of Manhattan's largest office leases of the month, the Midtown South office market registered more than 600,000 SF of leasing activity in April -- a 90% month-to-month increase over March's activity and a 47% increase over April 2001. The largest transaction was The Interpublic Group of Companies' 285,000-SF lease at 100 West 33rd St. The other major lease was executed by Guy Carpenter & Co., Inc., a company displaced from 2 World Trade Center, which subleased 105,000 SF from Credit Suisse First Boston at 1 Madison Avenue.