NYC Top-Quality Office Availability Reaches 19-Year High
The availability of top-quality office space in Manhattan rose to the highest in almost two decades as a new skyscraper at the World Trade Center site neared completion, according to brokerage Studley Inc.
The Class A availability rate jumped to 14.5 percent in the fourth quarter from 12.3 percent the previous three months, the New York-based firm said in a draft report. Studley, which represents tenants, defines availability as empty space plus offices that are slated to become vacant in the next 12 months.
The increase was largely driven by a rise in available space in lower Manhattan, where 4.3 million square feet (399,000 square meters) is being marketed at the new 4 World Trade Center tower and Brookfield Office Properties Inc. (BPO)’s World Financial Center. Almost 1 out of 5 square feet of offices downtown are unclaimed -- a 20-year high and up from 12.6 percent in the third quarter, Studley said. The influx of space, along with “cautious” leasing by companies, may pressure landlords to cut asking rents, said Michael Colacino, the brokerage’s president.
“There’s got to be an inflection downward in pricing downtown to really clear that market, to get all that space absorbed,” Colacino said in an interview. “The rents at the Trade Center and the Financial Center will have to come down to make that market happen.”
For all of Manhattan, the fourth quarter’s Class A availability rate was the highest since the end of 1993, when the city was recovering from the savings and loan crisis that caused Wall Street to cut 16 percent of its jobs, according to Studley.
Larry Silverstein, developer of 4 World Trade Center, has about 1 million square feet still unrented at the 2.3 million-square-foot skyscraper, set to open by late 2013. The World Financial Center, in the process of being renamed Brookfield Place, has almost 3.3 million square feet becoming available, mostly from the expiration of Bank of America Corp. leases.
The two downtown landlords are seeking rents of $55 to $75 a square foot, according to the Studley report. In the fourth quarter, the average asking rent for Class A offices downtown was $51.11, up 1.4 percent from the previous three months, the brokerage said.
Landlords sitting on large blocks of available space may also have to accept smaller tenants than they may have planned for, Colacino said.
“There aren’t a lot of 800,000- to 1 million-square-foot tenants out there,” he said. “There are a fair number of 500,000- to 600,000-foot tenants. Back in the day, there were always a few million-square-foot behemoths out there, and I just don’t see them in today’s market.”
Silverstein expects his new skyscraper “to lease up just as successfully” as 7 World Trade Center, the 1.7 million-square-foot tower that was rebuilt after the 2001 terrorist attacks and is fully occupied, said Bud Perrone, a spokesman for the developer.
“Great companies want to be in new, green, high-tech buildings,” he said.
Melissa Coley, a spokeswoman for New York-based Brookfield, declined to comment on World Financial Center leasing.
The citywide availability rate will probably keep climbing through 2013 as another 3.3 million square feet of Class A space hits the market, the brokerage said. That includes 1.3 million square feet at 1 World Trade Center, the skyscraper being developed by the Port Authority of New York and New Jersey and the Durst Organization.
The tower, slated to be the Western Hemisphere’s tallest at 1,776 feet (541 meters), “is unique,” Douglas Durst, the Durst Organization’s chairman, said in an e-mail. “With over 55 percent of the building already leased, we are under no pressure and have no intention of lowering our asking rents.”
Also next year, 880,000 square feet at 180 Maiden Lane, a downtown tower co-owned by SL Green Realty Corp. (SLG), is slated to become available when American International Group Inc. leaves in May 2014, Studley said.
The property was among many on the eastern edge of lower Manhattan whose basements flooded Oct. 29 during Hurricane Sandy, making the buildings uninhabitable for several days. Damage in the area may mute demand by technology firms, which were the most aggressive takers of office space in 2012, Colacino said.
Many New York businesses have been delaying leasing decisions while they wait out the resolution of U.S. budget talks, financial regulations under the Dodd-Frank law and Europe’s sovereign-debt crisis, Colacino said.
Total Manhattan office leasing in the fourth quarter was less than 6 million square feet as of mid-December, after two straight quarters of more than 9 million square feet each, according to Studley. The pace is similar to the first three months of 2012, which had the smallest amount of leasing since the 2009 recession, the brokerage said.
Most New York companies are reducing the amount of space per employee, with many choosing row-style seating arrangements over individual offices or cubicles, Colacino said.
In Midtown, the largest and most expensive U.S. office market, Class A availability rose by almost a percentage point to 13.1 percent, the highest level since the middle of 2010, according to Studley.
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