Tumble! Manhattan Investment Sales Plunge In '08

skyline2 8 Tumble! Manhattan Investment Sales Plunge In '08Over $13.8 billion in Manhattan investment sales closed or went under contract in the first six months of 2008, a precipitous drop from the $34 billion in sales volume done in the first six months last year. Nearly half of this 2008 volume came via foreign investors.

The numbers come from brokerage Cushman & Wakefield’s latest quarterly Manhattan market report, released this morning during a breakfast at Midtown power eatery Michael’s.

The dismal investment sales numbers–which cover building, property and portfolio sales–aren’t a surprise, really. Nor is the increase in the amount of foreign investment (it accounted for maybe 12 to 15 percent of investment sales in previous six-month periods).

Loans, particularly for bigger purchases, are harder to come by; and buyers–American ones, especially–are wary and weary.

Release on the Cushman & Wakefield report below:

 

MANHATTAN’S OVERALL VACANCY RATE RISES TO EQUILIBRIUM LEVEL AT MIDYEAR 2008

NEW YORK – July 1, 2008 – Cushman & Wakefield today released its midyear report for the Manhattan commercial real estate market showing that the city’s overall vacancy rate has reached the bottom end of equilibrium level , the 7 – 9 percent range in vacancy where tenants and landlords are perceived to be on relatively equal footing in the marketplace.

The overall vacancy rate for Manhattan increased to 7.1 percent, up 1.8 percentage points from this time last year, and at its highest level since the third quarter of 2006.

The three submarkets of Midtown, Midtown South and Downtown all experienced increases in vacancy from the previous quarter. Midtown’s overall vacancy rate increased to 7.1 percent, Midtown South increased to 5.9 percent and Downtown reached 7.7 percent.

The vacancy rate for space available directly from landlords increased 0.6 percentage points from the first quarter of 2008, and 1.3 percentage points from this time last year, reaching 5.6 percent at midyear 2008, a 30 percent increase. The sublease vacancy rate increased to 1.5 percent, up 0.4 percentage points from the previous quarter and 0.5 percentage points from this time last year, a 50 percent increase.

“We have started to see some more substantial sublet space come to the market, but so far less than anticipated,” said Joseph Harbert, chief operating officer of the New York Metro Region for Cushman & Wakefield. “It’s a healthy sign for tenants who have been starved for space alternatives, and therefore a more favorable time for tenants to be in the market.”

Despite the increase in vacancy, average asking rents continued to increase, albeit at a slower pace than one year ago. Overall asking rents for Manhattan reached $71.59 per square foot, up nearly 7 percent from $67.13 per square foot at the end of the first quarter of 2008, and up 21 percent from $59.17 per square foot at this time last year. Class-A asking rents in Midtown hit a new record at $92.30 per square foot.

Average asking rents for sublease space increased 30 percent from this time last year, reaching $69.56 per square foot at midyear 2008, while asking rents for direct space increased 17 percent year-over-year, to $72.14 per square foot. This indicates that although both sublet and direct prices have risen, the sublet product now coming to the market is significantly more expensive than what was available one year ago.

Year-to-date leasing activity totaled 11.5 million square feet at midyear 2008, down 2 percent, or approximately 255,000 square feet from this time last year.

“Leasing activity is nearly on par with 2007, no doubt due to the number of large leases signed during the first half of the year,” said Mr. Harbert, referring to the 21 leases of more than 100,000 square feet completed in the first six months of 2008. At this time last year, only 13 such leases had been signed.

Large leases in both Midtown South and Downtown buoyed leasing activity in the respective submarkets in the second quarter of 2008. AIG’s 800,000-square-foot lease at 180 Maiden Lane in Downtown Manhattan brought June leasing activity there to 1.3 million square feet, compared to 150,000 square feet for April and 266,000 square feet in May. In Midtown South, Newsweek’s 163,000-square-foot lease at 395 Hudson Street brought leasing activity to 1.1 million square feet in the second quarter of 2008.

Of all industries, advertising agencies have been the most active this year, accounting for nearly 20 percent of leasing activity year-to-date. Two of the year’s top three largest leases were inked by advertising agencies – Saatchi & Saatchi’s renewal at 375 Hudson Street and Ogilvy & Mather’s lease at 636 11th Avenue.

Financial services accounted for only 14.1 percent of leasing activity, the second most-active industry segment at midyear 2008. Just one year ago, however, financial services had accounted for more than one-third of all leasing activity in Manhattan.

INVESTMENT SALES

Manhattan property sales volume reached $13.8 billion for transactions closed and under contract through midyear 2008. At this time last year, $34 billion in property sales had closed or were under contract, which included $10 billion in two REIT privatizations.

“While volume is down substantially from last year’s all-time record, velocity did pick up in the second quarter,” noted Mr. Harbert.

Transactions closed and put under contract during the second quarter of 2008 provided new data points for the market. While values are down approximately 15 percent from the record peak in the first half of 2007, present values still reflect significant appreciation over the past few years.

“Though leasing activity has slowed and vacancy has increased, the lack of both new supply and good construction sites in the commercial core highlights the serious under-supply we face long term,” said Mr. Harbert.

A lack of supply, coupled with the weak dollar, boosted foreign investor interest and activity in the first half of 2008. Year-to-date, foreign investment has accounted for more than 48 percent of investor dollar volume, a notable increase from the 12 – 15 percent level in recent years.

“Cushman & Wakefield’s New York Capital Market’s Group has had serious interest in recent marketing campaigns from Middle Eastern, Chinese, Russian, Irish, English, Swedish and German investors, among others, with new capital sources continuing to enter the market here,” noted Mr. Harbert.

RETAIL

Manhattan‘s retail rental market continued to withstand the onslaught of negative economic indicators as the first half of 2008 came to a close.

"Manhattan’s place in the international community continues to provide the buoyancy to maintain rental and vacancy stability,” said Gene Spiegelman, executive director of Cushman & Wakefield Retail Services. “However, the national economy is moving some clouds into the region. Though certain sub-markets remain strong, we are experiencing increased availability and a subsequent flattening or decline in retail rents in certain market segments.”

Two of Manhattan’s most prominent retail markets – Soho and Madison Avenue – exhibited divergent trend lines in the first half of 2008. In Soho, average ground floor asking rents increased 39 percent year-over-year, to $333 per square foot at midyear 2008, and availability remained relatively stable at 9 percent. Uptown, on the luxe stretch of Madison Avenue from 59th to 72nd Streets, the availability rate nearly doubled year-over-year, ending the second quarter of 2008 at 13.4 percent. During the same time period, average ground floor asking rents remained somewhat flat, up 8 percent to $1,107 per square foot.

“There is a clear difference in market dynamics between Madison Avenue and Soho,” said Mr. Spiegelman. “Soho has developed a strong international appeal, similar to Fifth Avenue, making it a ‘must have’ location for brand expansion; while Madison Avenue, catering to a more defined group of luxury and couture retail concepts, will have to increase absorption to reduce the current inventory.”

Moving to Manhattan’s Upper West Side, spanning 60th to 86th Streets on Broadway, average asking rents for ground floor retail space fell 9.5 percent from this time last year, averaging $316 per square foot at midyear 2008. Conversely, Fifth Avenue saw substantial increases in
rent and decreases in availability. On Fifth Avenue, from 49th to 60th Streets, non-published asking rents for premier retail space hit $2,500 per square foot, clearly positioning Fifth Avenue as the highest-value retail corridor in the international marketplace.

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OFFICE MARKET STATISTICS BREAKDOWN

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Midtown

Manhattan

2Q 08

1Q ‘08

4Q ‘07

2Q ‘07

Total Vacancy

7.1%

6.1%

5.7%

5.3%

Sublease Vacancy

1.5%

1.1%

0.9%

1.0%

Overall Rent

$71.59

$67.13

$65.08

$59.17

2Q 08

1Q ‘08

4Q ‘07

2Q ‘07

Total Vacancy

7.1%

6.0%

5.8%

5.3%

Sublease Vacancy

1.5%

1.1%

1.1%

1.0%

Overall Rent

$83.96

$78.85

$76.26

$69.08

Midtown South


2Q 08


1Q ‘08

4Q ‘07

2Q ‘07

Total Vacancy

5.9%

5.0%

“font-size: 9pt”>4.7%

3.5%

Sublease Vacancy

0.6%

0.4%

0.3%

0.5%

Overall Rent

$53.22

$48.95

$46.89

$42.31

Downtown


2Q 08


1Q ‘08

4Q ‘07

2Q ‘07

Total Vacancy

7.7%

7.2%

6.2%

6.7%

Sublease Vacancy

2.0%

1.7%

0.9%

1.2%

Overall Rent

$50.74

$50.28

$47.47

$44.48