market research

March 2010

March 2010 New York Commercial Real Estate Market Report

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Landlords are being very aggressive to retain stable existing tenants, once the tenants have shown they are serious about moving. Tenants have also realized the need for a Tenant broker in these negotiations.

The dollar volume of office condominium sales in Manhattan slipped by nearly a third last year to its lowest level since 2005. The value of condos sold fell to $158 million in 2009, the weakest year since 2005 when just $49 million sold. The volume in 2008 was $233 million. The total amount of square feet sold fell by 42 percent to 220,000 last year from over 379,000 in 2008. As of the end of 2009, there were 8.2 million square feet of commercial condos in 76 buildings. The decline was representative of the broader sales market. The drop, however, was not as steep as the overall 72 percent fall in Manhattan building sales volume last year.

Residential Rents in New York City and Northern New Jersey saw their smallest annual increase since 1994, climbing just 1.6 percent between January 2010 and the same month a year earlier. Meanwhile, the unemployment rate was at 10 percent in the area over the same time period. Housing costs in the region have ramped up more rapidly than other living expenses for the last quarter century. Since the early 1980s, housing costs have increased by more than 300 percent, compared to food expenses which rose 125 percent and clothing, which rose less than 20 percent. Household energies on the other hand have decreased by 1.6 percent over the same time period.

New York Market Overview

  • Total Manhattan Class A Office vacancies stayed at 8.7 % vacant
  • Total New York City Office vacancy stayed at 7.8 % vacant
The high volume of commercial leasing in recent months, fueled in part by tenants signing early renewals at sharply reduced prices, could come back to bite the market next year. Tenants with two and three years remaining on their leases and sometimes even four years are signing renewals early.

The vacancy rate for Midtown Class A office space fell last month to its lowest level since the first quarter of 2009. The Midtown Class A vacancy rate was 14.3 percent in January, down from 14.7 percent in December. At the same time, asking rents for Class A space in Midtown were flat, down four cents to $65.15 per square foot. For all classes of Midtown buildings, the vacancy rate fell by .5 points to 13.8 percent and the average asking rent slipped by five cents per foot to $59.43 per square foot. For Manhattan overall, the vacancy rate fell by .3 points to 12.8 percent, and the average asking rent fell by 26 cents per foot to $53.33 per square foot. Capital markets could recover quickly, but fundamentals remain weak.

The volume of new office leasing in Manhattan slipped last month from the 12-month high seen in December but was twice what was recorded in the same period a year ago. For Manhattan overall, the 1.94 million square feet leased in January was 12 percent lower than in December, but was more than twice the level recorded in January 2009, when just 920,000 square feet was leased. The volume of leasing has been an important indicator of stability in the marketplace, because tenants are more comfortable taking space at current pricing levels. The leasing volume dropped in all three Manhattan markets in January, but fell the most in Midtown. Meanwhile, in Midtown South there were positive signs as rental rates rose significantly and vacancy rates fell last month.

As plunging rents and empty office and retail space continue to threaten the city's commercial landlords, prospective tenants are increasingly looking at a building's financial health before committing to a lease. Even if a financially-strapped landlord does not actually default, the strain often becomes obvious in the form of run-down lobbies and stringy heating or air-conditioning.
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