Report: 2002 seeing mixed results so far

Real Estate Weekly, July 31, 2002

Manhattan's office market finished the first half of 2002 with mixed results, including a drop in leasing activity but a decrease in negative absorption. According to Insignia/ESG's Midyear 2002 "i on the market" report, overall leasing declined by 13% but negative net absorption improved by 3.82 million SF, compared with first-half 2001 levels -- signaling a slowing in the rate of space returning to market. On the positive side for tenants, average asking rents decreased by nearly $4 per SF market-wide during the first half of the year.

Manhattan's bright spot, without question, is the stellar cleanup of Downtown following the destruction of the World Trade Center on Sept. 11. Working 24/7 since that day, workers finished clearing the 16-acre site this past May. Proposals for the new development and memorials that will be built at the site have been submitted to the Lower Manhattan Development Corporation, which hired the architectural firm Beyer Blinder Belle to select the final plan by this coming December.

As for June activity, availability Downtown declined last month by 0.2 points to 13.9%, making Downtown the only Manhattan market to see available space decrease. Midtown's availability rate increased 0.3 points to 9.8%, while Midtown South saw a 0.2-point rise to 12.4%. All three markets recorded slight drops in average asking rents for the month: Downtown and Midtown rents each decreased by 1% to $37.79 and $54.94 per SF, respectively; and Midtown South rents dropped 2% to $35.98 per SF.

Activity picked up somewhat in June, and Midtown and Midtown South each recorded increases in monthly leasing compared with the same month last year. Revlon's 182,000-SF short-term renewal at 625 Madison Ave. helped Midtown post 770,000 SF of activity last month - up 67% from June 2001's activity. Sublease with withdrawals eased availability within Midtown South. Although Downtown's monthly leasing was less than a year ago, total activity through midyear is actually ahead of last year's pace, thanks in part to the tenant retention incentives implemented by the city, state and federal governments.

Highlights of Insignia/ESG's Midyear 2002 "i on the market" report include:

* Downtown leasing from January through June increased 21% to 3.19 million SF, compared with the first half of 2001. Midtown's leasing declined 22% to 4.84 million SF, and Midtown South's leasing slowed by 27% to 2.15 million SF.

* Despite strong leasing, Downtown's availability rose 2 points to 13.9% since the start of the year. Availability in Midtown South increased 1.4 points to 12.4% over the same period. In Midtown, despite the aftershocks of Sept. 11 and a weak economy, availability remained close to equilibrium, increasing 1.5 points to 9.8%.

Average asking rents Downtown fell 9% since the start of the year to $37.79 per SF. In Midtown, average asking rents dropped 7% to $54.94 per SF and Midtown South rents declined 11% to $35.98 per SF.