Insignia/ESG market report: leases, rates still ascending

Real Estate Weekly, June 7, 2000

Manhattan office market activity ended the first quarter of the new millennium with a stellar performance. April's activity has continued, with leasing volume and rents continuing their steady ascent, according to Insignia/ESG's May Office Market Report.

Leasing volume for the month exceeded 1.6 million square feet in Midtown, with year-to-date volume of 7 million square feet, nearly double the same period last year. Downtown, last month's leasing volume of 630,000 square feet pushed this market's total for 2000 to 3.6 million square feet, an impressive 76 percent over last year. Midtown South's 410,000 square feet of leasing velocity outpaced last April's 360,000 square feet, with year-to-date volume one- and-a-half times the level recorded in 1999.

In Midtown, positive net absorption was well ahead of last year's negative 160,000 square feet for the comparable four-month period, registering a healthy 1.2 million square feet for the month and 3.7 million square feet for the year. The picture is similar Downtown, where positive net absorption of 2.6 million for the year-to-date -- 660,000 square feet for April -- was in sharp contrast to the negative 380,000 square feet posted for the same period last year. In Midtown South, the first four months of 2000 saw a positive net absorption of 260,000 square feet in April, contributing to 1.1 million square feet for 2000, a dramatic swing from negative 680,000 square feet in the same period last year.

The amount of available space has dropped appreciably in all markets. In Midtown, 4.2 percent of the inventory is available, compared to 7.7 percent a year ago. Downtown, 6.3 percent of total inventory leaves 6.1 million square feet available, a decrease of 47 percent since April 1999. Continuing demand last month has reduced Midtown South's availability rate to 4.8 percent, 3.1 points less than the same time last year.

As lower priced space was absorbed in Midtown South, average asking rents rose 4 percent during the month to $39.85, which represents a 35 percent increase over last year. In Midtown, rents soared an average $2 per square-foot during last month and 14.3 percent since 1999 to $52.85 per square-foot. The Downtown market showed gains in average asking rents up 12 percent over last year to $36.07, a record high in that market.

Penn Plaza was Midtown South's top performer, with leasing velocity of 150,000 square feet, and available space down by half since last year to 3.7 percent. As a result, rents have risen to an average $37.88, up 33 percent from a year ago. Downtown's Financial District accounted for 83 percent of the segment's leasing volume and 80 percent of its absorption. Average asking rents climbed 11.3 percent over the past year to $35.68. Once again, Midtown's top-producing segment was Grand Central, with 460,000 square feet of leasing in April. As a result of numerous months of strong activity, this submarket's ample supply of available space has dropped to 5.4 percent, a reduction of 15 percent over the month to 2.1 million square feet.