Midtown North asking rents inch higher

Real Estate Weekly, July 31, 2002

Midtown North asking rents inched higher, while vacancies also rose in the second quarter of 2002, according to a market study being issued by GVA Williams, one of New York City's leading commercial real estate service providers.

GVA Williams reports that Midtown North asking rents climbed to $58.40 from $56.71 in the second quarter of 2002. Availability in Midtown North also climbed to 10.4% in the second quarter, up from 9.7% in the first quarter.

The report notes that rents typically drop when availability rises, but that the addition of nearly two million SF of highly priced new space onto the market accounts for the anomaly. AOL Time Warner's 320,000 SF available at 60 Columbus Circle, the 200,000 SF at CIBC's building at 300 Madison Ave. and the 1.2 million SF of space now available at 7 Times Square after the Arthur Andersen pullout all added to the volume of space already available.

With incentive packages raising the potential of a flight of Midtown North tenants Downtown, and the large blocks of new space flooding the market, many Midtown North landlords with pre-built sublease space available may begin to be more competitive in their asking rents. As a result, tenants may begin to accelerate decisions to renew or relocate, as they try to lock in current rates.

"Tenants are beginning to make decisions," said GVA Williams President and CEO Michael T. Cohen. "No company wants to be left behind on a Wend, and the feeling is even when business is bad, you can improve your bottom line now and create equity by controlling or lowering real estate costs."

"A 10- or 15-year lease for raw space at $45 per SF that requires a $100 build out is going to be more expensive than a $55 per SF, pre-built space that requires little out-of-pocket expense for-the new tenant," Cohen added. "As a result, the market for those raw spaces will be even more competitive."

Overall Manhattan availability rose to 13.3%, up from 12.2% in the first quarter; overall asking rents also rose slightly, to $46.61 per SF. Downtown availability also climbed, to 17.2% from 14.7%, due in large part to World Financial Center space coming onto the market. Asking rents Downtown jumped to $39.16 per SF, up from $37.77 in the first quarter. Meanwhile, Midtown South availability held steady at 12%, while rents continued to decline.