July 10 (Bloomberg) -- Office rents in midtown Manhattan declined in the second quarter, the first drop in two years, as the area south of the district gained popularity among prospective tenants, according to Cushman & Wakefield Inc.
Asking rents in Midtown, the largest U.S. office market, fell to an average $66.44 a square foot from $66.68 in the first quarter, the brokerage said in a statement today. In the downtown market, which includes the city’s financial district, landlords sought $40.06 a square foot, down from $40.18.
The area known as midtown south has replaced Midtown as the most desirable location for companies to lease space, the brokerage said. Midtown south, also called Silicon Alley because of its popularity among media and technology companies, has the lowest vacancy rate of all central business districts in the nation, at 6.1 percent, according to Cushman & Wakefield.
“Historically, Midtown was the location that companies flocked to for affordable rent following a recession, but that’s not the case this time,” Ken McCarthy, senior economist at Cushman & Wakefield, said in a statement.
Asking rents in midtown south, an area roughly between 30th and Canal streets, rose to $49.43 a square foot in the second quarter from $48.45 in the previous three months.
As media and technology expand, the financial-services industry -- traditionally the largest user of New York offices -- is doing more with less space, McCarthy said today at a briefing. While office-using employment has exceeded its 2008 peak, Manhattan’s office vacancy rate remains at 9 percent, compared with about 6 percent four years ago, he said.
“Financial services has added about 25,000 jobs since the bottom of 2010, yet occupancy in the financial-services industry hasn’t grown,” McCarthy said. “What they’re doing is they’re taking their existing footprint and using it more efficiently.”
New towers under construction in Midtown and downtown will put further pressure on the market, according to a report by Studley Inc., a brokerage that represents only tenants. Some tenants may delay space decisions because of concerns about the U.S. elections, the fate of financial reform and the European debt crisis, wrote Steven Coutts, Studley’s senior vice president for research.
“We’re in a kind of lull or holding pattern that will play to the benefit of tenants for a series of quarters,” Coutts said in a telephone interview. “That fact that you have more product coming on line, and that is pushing supply up a little bit, is a good opportunity for tenants.”
In lower Manhattan, 4 World Trade Center has about 1 million square feet (93,000 square meters) still unleased, according to Coutts’s report. The tower, which Larry Silverstein is developing, should be completed in about a year.
Two buildings slated for completion in 2013, 51 Astor Place in midtown south, and the International Gem Tower in Midtown, each have about 300,000 square feet available, he wrote.
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