The Midtown, Midtown South and Downtown markets were relatively flat with minor tightening, as prices remained stable. However, landlord concessions towards work and construction are being gradually reduced. As the economy continues to improve, “Shadow Space” (space vacated by corporations but not listed for rent as doing so would require them under the tax laws to recognize the loss in the current year) is being reduced as corporations with possible near-term expansions in mind are withdrawing the shadow space from the market.

The Total Manhattan Office lease market remained flat, with vacancies increasing slightly from 47.68 million RSF to 48.00 million RSF, as Total Direct lease availability rose from 35.57 million RSF to 37.08 million RSF, while Total Sublease availability fell from 12.11 million RSF to 10.92 million RSF.

As Manhattan office, retail and industrial vacancies continue to decline, landlords are starting to decrease the concession packages offered to tenants. Current face rents are 30-50% below their peaks but prices may soon start to rise. With little new construction and the net absorption of space the market is getting tighter.

The Buildings for Sale Market remains robust with no sign of letting up in the short term.

Even though leasing prices remain soft, fully leased properties continue to command top dollar. Harry Macklow is currently in contract to buy the GM BUILDING for $1.4 Billion ($800/Square Foot), a new building sale price record. The building was last sold in 1998 for $878 million. The previous record building sale was Lehman Brothers purchase of 745 Fifth Avenue for $700 per square foot, followed by Boston Properties purchase of 399 Park Avenue for $630 per square foot ($1.05 billion).

Signs of economic recovery appear as Wall Street layoffs abate, low interest rates continue and threats of war and layoffs from city and state government agencies subside.
With corporate downsizing slowing down and the majority of firms now profitable, the potential for hiring in Manhattan could cause rental prices to bounce back from their recent historical lows. As the downsizing abates and firms start rehiring, they will require space for the new employees. This will in turn reduce available sublease and direct lease space, enabling landlords to offer fewer incentives and less competitive prices.

Several major corporations have relocated within Manhattan by signing large long-term leases, locking into place favorable financial terms while obtaining space better suited to their needs.

There are some signs of improvement in the commercial real estate market in Manhattan. According to the City’s comptrollers office NYC added 10,700 jobs in April, the largest monthly increase in 2.5 years. In addition Pfizer and the Bank of America both recently announced expansions in New York. Pfizer plans to relocate 2000 jobs to New York from other parts of the country and the Bank of America in a planned expansion is about to enter into an agreement to build a new headquarters in Times Square.

Huge City and State budget deficits will pose two risks to the already fragile NYC economy. Firstly, higher taxes will encourage more businesses to relocate out of the city. Secondly, the layoffs of city and state workers will add additional space to an already saturated real estate market.

With the war in Iraq now in full bloom, apprehension over a prolonged conflict coupled with a lackluster economic outlook in the near term has lead many firms to postpone or reconsider any major commercial activity.

Prices continued to soften as major landlords offered further 10-15% price reductions. Overall vacancy rates remained relatively unchanged in the past 30 days, with no major changes in any particular sub market (Downtown, Midtown South, Midtown, or Uptown).

In the past 30 days, Manhattan vacant office space increased by 1.93 million Rentable Square Feet (RSF). Out of this 1.93 million RSF, 1.18 million of it is Class A office space. Major amounts of “Shadow Space” loom (Shadow space is space vacated by major corporations who have not yet listed the space for rent as doing so would require them under the tax laws to recognize the loss in the current year).

Office vacancy rates continue their consecutive monthly decline in Manhattan as major firms make major long-term commitments throughout the city.