Midtown records strong leasing, as downtown tightens

Real Estate Weekly, April 1, 1998

Major leases by Banco Santander (198,000 square feet at 1251 Avenue of the Americas); Price Waterhouse (69,000 square feet at 1177 Avenue of the Americas); and Societe General (50,000 square feet at 630 Fifth Avenue), weren't enough to offset the return of space by such large tenants as Bates USA (237,000 square feet at 405 Lexington Avenue); IBM (223,000 square feet at 909 Third Avenue); and Furman Selz (205,000 square feet at 280 Park Avenue).

Large companies scouring the tight Midtown office market for available contiguous blocks of space (100,000 square feet or more) now have 27 options from which to choose.

With 410,000 square feet of leasing activity, the Sixth Avenue/Rockefeller Center submarket led Midtown's robust leasing activity in February. That performance lowered Sixth/Rock's availability rate to just 4.1 percent - less than half its level a year ago and the lowest of all Midtown segments. Midtown as a whole saw its availability rate climb by 0.3 percentage points in February to 9.2 percent.

According to Insignia/ESG, Midtown's average asking rent rose $1.05 last month to an $37.41 per square foot, even with the rise in availabilities. Fifth/Madison Avenue had the highest average rent at $48.67 per square foot, while Penn/Garment rents were the lowest at $27 per square foot.

Downtown Market Tightens

A lack of blockbuster leases during the first two months of 1998 did little to stop the tightening of the Downtown office market in February. The nearly 330,000 square feet leased during the month, coupled with space taken off the market in anticipation of sales or residential and hotel conversions, resulted in net absorption of 214,984 square feet. Nevertheless, year-to-date leasing is off by 17 percent and absorption by 48 percent from 1997's exceptionally strong levels.

The City Hall/Insurance district tightened the most last month, recording 263,579 square feet of net absorption on only 92,143 square feet of leasing activity. The reason? Approximately 129,000 square feet was taken off the market at 90 John Street in anticipation of residential conversion, and 74,000 square feet was withdrawn at 59 Maiden Lane pending a sale of the building. As a result, the City Hail/insurance submarket's availability rate dropped nearly two percentage points in February to 8.3 percent - down from 22 percent a year ago.

In contrast, the Financial District saw its availability rate rise modestly to 20 percent in February due to two large blocks of space returned to the market at 19 Rector Street (163,000 square feet) and 20 Exchange Place (75,000 square feet). Space returned to the Financial District exceeded the leasing by 64,304 square feet for the month. The World Trade Center/World Financial Center submarket, on the other hand, saw its availability drop to 6.5 percent (a seven point drop from a year ago), making it the tightest of all Downtown submarkets.

According to Insignia/ESG's Office Market Report, average asking rents Downtown rose by 41 cents in February to $27.04 per square foot. The WTC/WFC segment posted the highest average asking rent at $32.79 per square foot, while the City Hail/Insurance segment posted the lowest asking rent at $22.26 per square foot.

Midtown South Active

The Midtown South market continued its robust activity in February, as the market recorded 186,000 square feet of net absorption on leasing activity of 353,000 square feet. This activity upped the market's year-to-date net absorption to 826,000 square feet - more than 670 percent above last year's total.

Most of last month's activity is attributed to two large leases: Federation Employment Guidance Service's 142,000 square feet at 315 Hudson Street and the School of Visual Arts' 110,000 square feet at 133 West 21st Street.

Midtown South's top performer last month was Hudson square/Tribeca submarket, which registered 135,100 square feet of net absorption on 150,126 square feet of leasing activity. As a result, this segment's overall availability rate fell to just 5 percent in February.

The Park Avenue South/Madison square submarket remained the tightest in Midtown South, as its availability rate fell to 3.8 percent - the lowest of all Manhattan submarkets. The continued tightening of this submarket is evident in the drop in leasing activity, from 387,455 square feet in January to just 38,000 square feet last month.

Large tenants are having a difficult time finding suitable availabilities in Midtown South, since only three large blocks of 100,000 square feet or more remain. Average asking rents continued to climb in February, closing the month at $22.68 per square foot - up 13 percent from a year ago.

The Flatiron district commanded the highest asking rent at $24.19 per square foot, while the Hudson square/Tribeca segment had the lowest asking rents at $21.37 per square foot.