Despite concerns over the national economic picture during the second half of the year, the Manhattan office finished 2007 with lower vacancy rates and record high asking rents. Leasing activity and absorption rates are lower than last year due largely to fact that there is less space. Recent announcements of layoffs by several major financial institutions could bring additional space to the market in the near-term, but for now vacancy lies near 7.0 percent, at the lower end of equilibrium.
Leasing Activity
Midtown
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The vacancy rate for Class A space has hovered between 7.2 percent and 7.5 percent over the past few months. Unlike the recent past, many of the largest leases during the year were renewals. Renewal activity has been spurred by the lack of large blocks of space and continued escalation in rents. High-profile renewals included:
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Davis, Polk & Wardwell for 650,000 s.f. at 450 Lexington Avenue.
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Cravath Swaine & Moore for 617,000 s.f. at 825 Eighth Avenue
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Omnicom Group at 437 Madison Avenue for 348,000 s.f.
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Group M Worldwide for 289,000 s.f. at 498 Seventh Avenue
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Rents for Class A space, which crossed the $90/s.f. mark for the first time in August, remained above that threshold at year end. Trophy property rents finished near $120/s.f.
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Although the beleaguered financial service sector has significant exposure to job losses in the wake of the sub-prime mortgage crisis, the industry still led leasing activity in 2007. Financial services accounted for over one-quarter of activity in transactions greater than 10,000 s.f.
Midtown South
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With a vacancy rate under 5.0 percent, Midtown South boasts the lowest vacancy in Manhattan and one of lowest of any CBD in the nation. A limited inventory of prime space has kept Class A vacancy near 2.0 percent.
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Overall asking rents are now higher than Downtown averaging near $53/s.f. Class A rents moved closer to $68/s.f. with Gramercy Park and SoHo submarkets both over $70/s.f.
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Midtown South is emerging as the market of choice for new media and technology firms with major leases completed by:
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Viacom -MTV Networks for 394,000 s.f. at 345 Hudson Street.
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Grey Advertising for 370,000 s.f. at 200 Fifth Avenue, the former Toy Center Building.
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AOL for 152,000 s.f. at 770 Broadway.
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Google for 130,000 s.f. at 75 Ninth Avenue.
Downtown
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The overall vacancy rate moved downward during the year, finishing near 7.8 percent, down from over 9.5 percent at the end of 2006. Class A vacancy similarly contracted and finished under 6.0 percent, lower than Midtown’s Class A rate.
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Class A average asking rents climbed throughout the year and finished over $53/s.f. for the first time ever. Rents have been buoyed by offerings at 7 World Trade Center and 32 Old Slip (Financial Square). Even though rents have moved upward, the disparity with Midtown Class A rents has also grown, with a gap of nearly $40/s.f.
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Several important transactions were finalized in the last quarter of the year including:
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Cleary Gottleib Steen & Hamilton, LLP’s renewal and expansion at One Liberty Plaza for 550,000 s.f.
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Omnicom Group leased 184,000 s.f. at 195 Broadway.
Building Sales
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The investment sales market stumbled slightly in the fourth quarter as a second ripple of turmoil in the debt markets was carried over from October. Buyers tried to digest new pricing for their transactions and steer a course in a volatile debt environment. Transactions caught in-process were reportedly re-priced between initial bids and final close.
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November activity illustrated the strong demand for Manhattan real estate and investors’ on-going confidence in the health of the leasing market.
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Despite the current financial environment, sales volume for the year remains high. In Midtown, total sales reached $30.4 billion through November, while total volume Downtown was $4.6 billion over the same period.
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Notable sales included:
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32 Old Slip to Beacon Capital for $750 million or $750/s.f.
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885 Third Avenue to Metropolitan Real Estate Investors for $607 million or $1,035/s.f.
Construction Activity
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The only building completion during the year was The New York Times headquarters at 620 Eighth Avenue.
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There are 2.5 million s.f. slated for delivery in 2008, including the Bank of America headquarters at One Bryant Park and 510 and 545 Madison Avenue.
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