Midtown market taking a dip, report says

Real Estate Weekly, May 17, 1995

"The continued shuffling of financial-services firms is opening up large blocks of space in Midtown, most notably those vacated by Morgan Stanley, Kidder Peabody and CS First Boston," said Robert L. Freedman, vice chairman of Williams Real Estate. "In the Downtown market, we are only slightly encouraged by signs of modest growth. This is an adjustment within the context of a sluggish market."

Illustrating the concerns facing Midtown North, The Williams Report points to the addition of several large blocks of space to the overall inventory of available space. As a result, aggregate tenancy has been reduced from a peak of 157.3 million square feet six months ago to 155.9 million square feet at the close of the first quarter for 1995. During this quarter, availabilities rose by 2.26 percent to 22.6 million square feet, pushing the availability rate up from 12.4 percent to 12.68 percent.

Despite the rising inventory, the average asking rental for available space in Midtown North climbed during the first quarter by 2.78 percent, from $34.23 to $35.18, the Report noted.

First-quarter leasing activity in Midtown South led to an increase in the aggregate amount of tenanted space in that area, from 61.8 million to 62.2 million square feet. The area's availability rate decreased by 3.76 percent, from 10.68 to 10.28 million square feet. The average asking rental now stands at $21.91 per square foot, up from $20.26 a year ago.

In pre-war buildings in Midtown South, average asking rentals are now 10.12 percent higher than a year ago, when the same amount of space was available. By contrast, The Report shows that Midtown South's post-1969 availabilities soared by 40 percent. Midtown South has followed no consistent pattern during the past several years, alternating frequently between quarters of positive and negative net absorption.

Manhattan's Downtown market tenancies increased by 420,570 square feet in the first quarter, marking the fourth period of positive net absorption in the last five quarters. Since hitting a low point at the beginning of 1994, aggregate tenancy has now expanded by 2.4 percent, from 73.34 to 75.1 million square feet. The average asking rental is $26.53 per square foot.

Despite modest gains in Lower Manhattan, the Report notes, Downtown has only recovered 63 percent of the damage done in 1993, and the market's availability rate remains above 22 percent, with 21.72 million square feet on the market. For the balance of 1995, large blocks of space appear ready to be added to inventory from firms such as Donaldson Lufkin Jenrette, Swiss Bank, Continental Insurance and Salomon Brothers. The Report warns that unless the diversity of Downtown tenancy is expanded to reduce its reliance on the faltering financial-services industry, the area's future as a vibrant business center could be in jeopardy.