News
HOW YA DOIN'?
April 7, 2011
| Q2 started off with a bang: among the deals are WilmerHale’s 210k SF lease at 7 World Trade Center, Madison International Realty’s$172M equity interest in Forest City Enterprises’ metro urban retail centers, and FelCor Lodging Trust’s $140M purchase agreement for fee-simple interests in The Royalton and Morgan hotels. But how was Q1? We tapped the market’s brain trust to find out. |
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| Manhattan’s office market continued its slow shift toward favoring landlords, we learned from UGL Services managing directors Chris Helgesen and Dirk Hrobsky. A strengthening NYC economy and increased investment sales volume translated into a stronger landlords’ market as ’10 drew to a close; even though Q1 rode the last of those waves, the momentum seems to have slowed down. Overall asking rents increased 23% quarter-over-quarter from $54.51/SF to $55.77/SF, with both Class-A and Class-B buildings in the upswing. Vacancy and availability also increased this past quarter, jumping from 7.8% to 8.1%, due to a rise in Class-A vacancy (Class-B remained flat), while availability rose from 11.9% to 12.1%. |
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| After experiencing a slight increase in Q4 ’10, both direct and sublet leasing volume declined last quarter, UGL’s Q1 analysis found. Direct leasing dropped by 13.3%, or from 6.3M SF to 5.5M SF, while sublet leasing fell by almost 50%. But it’s not as dreary looking as the skyline Legal Bisnow reporter Jeff Gamsey shot from 7 WTC on Tuesday: the average deal size for direct leases increased in Q1, showing a nearly 6,700 SF gain over the average direct deal in the previous quarter. Some of the largest deals of the quarter includedBank of America’s 500k SF renewal at 114 W 47th St, and Deloitte & Touche’s 430k SF consolidation, and Lazard’s 430k SF renewal and expansion, both at 30 Rock. Overall, net absorption decreased substantially, largely due to Goldman Sachs and AIG vacating space Downtown. |
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| But if you look month-to-month, Manhattan’s real estate marketreturned to stability in March after two months of rising availability, reports Cassidy Turley VP of research Robert Sammons. Both the overall vacancy rate and Class-A vacancy rate held steady; for all classes, direct and sublet availability was slightly higher but not enough to move the needle. While the overall asking rent remained steady, the Class-A figure managed a slight bump, climbing from $59.45/SF to $59.60/SF—its sixth-straight monthly increase and the highest since the $61.98/SF recorded exactly one year ago. |
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| Cushman & Wakefield says office market fundamentals willcontinue to improve, driven by strong leasing activity. New leasing activity in Q1 was 34% higher (or 1.9M SF) above Q1 '10. “We’ve kicked of 2011 with even more momentum from pent-up demandand decisive moves,” says New York metro region COO Joe Harbert, above, who presented the firm’s findings with research guruKen McCarthy at a breakfast at Michael’s Restaurant on Tuesday. Overall, Manhattan had 439k SF of positive absorption, despite blocks as large as 600k SF becoming available for lease, he says. Other major deals: the City of New York’s 619k SF lease at Four World Trade Center, Li & Fung’s 482k SF lease at the Empire State Building, and Bloomberg’s 389k SF lease at 120 Park Ave. |
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| New York’s key to resilience is both employment growth and limited new construction, which sustained the market during the downturn, Ken says. NY has regained 40% of the jobs it lost during the recession, he points out, a figure well above national employment growth (14%). By industry, Q1 leasing activity was lead bygovernment, education, and social services tenants, which combined accounted for 19% of all leasing, followed by apparel(17%), financial services (16.5%), information and media (12%), and legal services (8%). |
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| Despite an improving leasing market, quarterly fundamentals were still somewhat sluggish among Manhattan investment office sales, reports Colliers International. Well-capitalized buyers remain eager, despite reluctant sellers. “Large pools of capital are looking for product,” says Tri-State CEO Mark Jaccom, but the investors have been stymied by the lack of assets being offered to the market. However, its Q1 analysis says that at least seven properties were reportedly under contract for sale at the end of March, which suggests that investment sales activity may edge upwards. |
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| And the capital is ready, we learned from CBRE power duo Bill Shanahan and Darcy Stacom (who just won REBNY’s Edward S. Gordon Ingenious Deal award for last year’s sale of the leasehold development rights at 250 E 57th St). At Monday’s National Realty Club luncheon they said lenders are ready to take on loans alone—some as much as $1B. Investors want quality, avenue product, and these lenders are stepping up to the plate and being very competitive, Bill says. It’s hard to tell how much off-shore money is coming into Manhattan, Darcy says—some is reported, and plenty of it is not. Sponsorships are more important than ever, and these investors are conducting critical analyses of partners’ deals and operating platforms. High net-worth individuals are also coming back to the market. |
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| Investors are chasing yields, and the “dramatically different”Downtown is somewhere they’d particularly like to be. They’re attracted to the progress in transportation and World Trade Centerconstruction, above, and the submarket’s shift from being overly financially oriented. Overall, residential is coming back in a big way, and that’s where the loan market is, they say—there’s high demand for good, solid rental buildings that will remain rentals for life. Chicago has five towers going up with construction loans right now, Darcy points out, but we’re not seeing that kind of activity in NY yet, even though our job growth surpasses other US markets. |
