Manhattan leasing holds steady, Studley reports

Real Estate Weekly, Nov 17, 1993

New York City commercial real estate activity remained steady during the September/October reporting period, with 3,874,505 square feet leased. Year-to-date, leasing activity totals 19,148,159 square feet, representing a 9.8 percent increase over last year's activity. "Start-up stock brokerage firms have made a noticeable impression on the downtown market, while several law firms have relocated from lower Manhattan to Midtown, particularly the West Side, along the Avenue of the Americas," pointed out Maurice Solomon, Vice Chairman and manager of the Midtown New York office of Julien J. Studley, Inc. Overall, activity continues to focus on the opportunity to restructure existing leases or upgrade to renovated Class B or Class A product.

Leasing activity in Midtown Manhattan totaled 3,002,178 square feet for the September/October reporting period, a 16 percent increase in activity from the previous two months. Year-to-date, a total of 15,522,102 square feet of space has been leased, a modest increase of 5.2 percent over the 1992 year-to-date total.

"Tenants who have capitalized on the favorable market conditions over the last year will find these opportunities slowly tapering off over the next 12 months," noted Solomon. "In fact, unlike a year ago, owners of premier product are less likely to consider lease restructuring transactions unless they involve credit-worthy tenants."

A total of 43,697,146 square feet currently is available in the Midtown market, a 7.7 percent decrease from September/October 1992 figures. The oversupply of old space is slowly diminishing, currently totaling 40,713,896 square feet, representing a 2.8 percent decrease from the previous two months. Smart owners of Class B buildings continue to invest in renovations and lobby upgrades in an attempt to compete for strong tenants. For instance, many owners of pre-war buildings along Madison Avenue have demonstrated a financial commitment to their properties over the past year.

Tenants requiring 60,000 square feet or more of premier space are faced with limited opportunities, which, over the next six to 12 months will continue to diminish. Presently, the midtown vacancy rate rests at 16.4 percent, down from 17 percent as recorded in the July/August report.

Activity in new space continued at a steady pace with a total of 255,697 square feet leased during September/October. A significant portion of this activity occurred along the Avenue of the Americas, including 58,250 square feet of space by Price Waterhouse at the 1177 building, and a total of 81,000 square feet by various tenants at 1325 Avenue of the Americas. Additionally, unprecedented terms are being negotiated in the market's older product, including transactions for reuse opportunities.

"Commercial real estate opportunities along the Avenue of the Americas have tightened significantly over the last two years as the supply of large blocks of contiguous space, characteristic of the Avenue's offerings, have quickly diminished," said Ira Schuman, senior vice president and co-manager of Studley's Midtown office.

Once considered to be a fringe location, the migration of many law firms to Sixth Avenue, including Coudert Brothers and Patterson Belknap Webb & Tyler, reflects the recent recessionary times, the changing dynamics of business in the 1990s and the fluid boundaries of midtown's core marketplace. "The Avenue of the Americas provides a lower-cost alterative for tenants seeking significant cash savings on bottom-line expenses," said Schuman. Furthermore, buildings such as 1177 and 1251 Sixth Avenue offer institutional-style lobbies and close proximity to the Rockefeller Center amenities, without the additional operating costs found in Rock Center buildings.

The uptick in the Avenue's leasing activity began to unfold after 1991, when it had reached a notable low point. Tenants remained cautious at the beginning of 1992; however, the combination of a limited supply of premier product and a hint of optimism that the recession was over, added to the momentum of leasing activity throughout the year. A total of 2.5 million square feet of space was leased in 1992, driving the Avenue's level of available space down by 31.6 percent to a total of 3,716,634 square feet by year-end. In addition, the amount of available sublease space decreased by 63 percent, while direct space decreased by 15 percent in 1992. In fact, six out of the top ten leasing transactions in 1992 occurred on the Avenue, including the Price Waterhouse transaction for 350,000 square feet of space at 1177 Avenue of the Americas, the IRS lease for 240,000 square feet at 1133 Avenue of the Americas and News America's 230,000 square foot lease at 1211 Avenue of the Americas. "This was a dramatic increase over the previous year's activity, as no major deals dosed on Sixth Avenue during 1991," said Schuman.

Furthermore, the rapid leasing of the Avenue's large blocks of contiguous space and the increased amount of early lease renewals in 1992 contributed to the Avenue's overall slowdown in activity in 1993. Year-to-date leasing activity along Sixth Avenue totals 1,239,025 square feet of space for September/October, representing a 38 percent decrease in leasing activity from the first ten months of 1992. Nevertheless, since 1991, positive absorption has occurred along the Avenue. Consequently, space availability presently totals 3,826,073 square-feet, representing a 27 percent decrease in availability from September/October 1991. In addition, since 1991, available sub-lease space has been significantly leased-up, currently totaling 576,754 square feet, a 63 percent decrease from the 1,768,574 square feet reported in September/October of 1991.