Nearly 2.4 million square feet of sublease space entered the Manhattan office market in the last three months, according to a new report from Williams Real Estate, well more than the 1.8 million feet of space that came up for direct leasing. A sign of the times, indeed, as tenants shed office footage.
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A barrage of sublease space has caused Manhattan’s availability rate to rise sharply during the fourth quarter. Directly available space registered 8.1% and sublease space weighed in at 2.8% – the highest rate in more than three years.
Manhattan’s overall availability rate ended the year at 10.9%, the highest level in two years and more than three percentage points greater than a year ago. “With leasing activity languishing and tenant space choices growing exponentially, it is not surprising that the overall asking rent for Manhattan dropped by 4.0% from the previous quarter,” observed Mark Jaccom, CEO of FirstService Williams.
Almost 2.4 million square feet of sublease space entered the market over the last three months – outpacing the quarterly increase of 1.8 million square feet in directly available space. The majority of this space was added in Midtown North, which accounted for 83% of the sublease space additions. In contrast, Midtown North delivered only 57% of the directly available space for the quarter.
Leasing activity ended the year at 24.7 million square feet, 18.4% below the pace of a year ago. The two primary drivers of leasing activity over the last several years – Financial Services and Legal Services – have become major sources of the recent sublease space returns. A host of Financial Services firms, including Citigroup, Credit Suisse First Boston, Credit Lyonnais, Alliance Bernstein, UBS, MetLife, Bear Stearns, and National Financial Partners, have placed almost 1.2 million square feet of sublease space on the market this quarter. While Legal Services firms such as Reed Elsevier, Cadwalader, Wickersham & Taft and Thacher, Proffitt & Wood contributed 230,000 square feet of sublease space; other law firms, including Orrick, Herrington & Sutcliffe and Thelen Reid Brown vacated almost 450,000 square feet of direct space.
Manhattan’s occupied space shrank by 11.2 million square feet, reversing the positive absorption trend of 2007 (+1.5 million square feet). Declining for the second consecutive quarter, Manhattan’s overall asking rent of $74.49 fell by 4.0% for the quarter and registered 2.7% below the level of a year ago.
Midtown North experienced the greatest increase in its availability rate – reaching 11.9%, climbing 4.1 percentage points from a year ago and 1.5 percentage points from last quarter. Leasing activity for the year was 13.6 million square feet. Although only 16.1% below the pace of a year ago, this level of tenant activity falls well short of the peak annual pace of 32.2 million square feet registered for 2004. Absorption for the year was negative at -8.4 million square feet. Not surprisingly, this submarket’s overall asking rent declined for the second consecutive quarter, falling by 4.0% from the previous quarter to $88.81.
Rising to 8.5%, Midtown South posted a 0.8 percentage point increase for the quarter and a 1.5 percentage point increase from a year ago. Leasing activity declined to 13.6 million square feet – a 39% drop from the pace of 2007. At almost 1.1 million square feet, absorption slowed by 17.1% from the pace of 2007. The overall asking rent of $55.00 was down by 4.6% from last quarter and 9.6% from a year ago.
Downtown’s availability rate rose to 10.5%, a 0.8 percentage point increase for the quarter and 2.1 percentage point increase for the year. Leasing activity slowed sharply for the quarter, but matched the annual pace of 6.5 million square feet set in 2007. After posting a rather robust absorption pace for 2007 of 2.7 million square feet, this submarket registered a negative 1.7 million square feet for 2008. The overall asking rent, at $49.72, dropped by 2.4% for the quarter, but remained 1.6% above year-end 2007 rent of $48.94.
“With the economy expected to remain sluggish at best during the 2009, it is inevitable that the availability rate will rise further and rents will continue to decline throughout the next several quarters” stated Robert L. Freedman, Executive Chairman.