Commercial office rental rates in Manhattan fell during the second quarter but the bottom could be near according to data released by the real estate services firm CB Richard Ellis.
According to CBRE executives, who presented an analysis of the first two quarters of the year this morning during a market review breakfast held in the company’s midtown headquarters, leasing activity in Manhattan has picked up and vacancy levels have appeared to stabilize, key factors that could underpin a turnaround.
By many measures, the market has been far from a picture of health even though there are signs that the city is beginning to emerge from the economic downturn. Average asking rents have fallen steadily since peaking in 2008. Since last June, Manhattan’s average ask declined every month until May, dipping from $52.43 per square foot to $47.58.
But from May to June however, the average asking rate rose slightly, from $47.58 per square foot to $47.61 the first meaningful rise since 2008 according to CBRE. The increase follows a noticeably brisker pace of deals compared to last year. According to CBRE’s data, almost 11.7 million square feet has been leased in the first 6 months of 2010, almost double the 5.9 million square feet that was taken by tenants during the same period a year ago at a time when activity was at a low point.
At the current rate, the market is on track to leasing the most space since 2006 according to CBRE.
Although May to June could reflect a pivot in the market, the rebound appears to be gradual largely because important market factors that drive rents have also been slow to improve.
Availability rate for instance, a figure calculated by CBRE as the amount of present vacancy with what is expected to come available over the next 12 months, was flat in Manhattan from last year at 14 percent even though it has dropped slightly since the beginning of the year when availability was 14.2 percent.
Absorption, a figure that signifies the net amount of space added or subtracted from the stock of available space, has also been relatively flat. According to CBRE, 100,000 square feet has been absorbed this year, far better than in 2009 and 2008 when 11 million and 12.6 million square feet were added back to the market, but a shadow of the boom years in 2005 and 2006 when 5.1 and 5.3 million square feet were taken up.
“I don’t want to use the phrase bumping along the bottom even though it’s true because I know you’re all tired of hearing it,” said Matt Van Buren, a CBRE executive who manages the firm’s midtown brokerage operations and spoke during the breakfast.
Midtown and midtown south have faired better than lower Manhattan, which has been plagued by large additions to vacancy and weaker leasing activity.
In midtown, average rents rose from $54.63 per square foot in May to $54.83 in June and in midtown south increased from $41.70 per square foot to $41.89 during the same period. Midtown availability fell during the month, from 14.1 percent to 13.7 and in midtown south from 14.1 percent to 13.7.
In contrast, downtown rents dropped from $38.43 per square foot on average to 38.26 and availability jumped, largely because of the addition of 85 Broad Street, a building recently vacated by the financial firm Goldman Sachs, from 12.4 percent to 15.
Peter Turchin, a CBRE leasing executive who spoke about midtown in particular, said that the newer buildings, which are considered more desirable, have outperformed the rest of the market and have increasingly held favor with tenants.
In May for instance, he pointed out that 240,000 square feet of space was discounted in midtown and that the average age of the buildings in which the discounts were made was 81 years. Meanwhile, the rent for 115,000 square feet of space was raised during the month in buildings whose average age was 43 years.
In June, 210,000 square feet was discounted in buildings with an average age of 56 years and 240,000 square feet was priced higher in buildings with an average age of 36 years.
Turchin said that the top 20 buildings in the city, a list compiled by CBRE that includes newly constructed buildings like 11 Times Square and 1 Bryant Park and other towers that command the city’s highest rents, have a lower availability rate than almost any other segment of the market, about 9.8 percent.