Lee NYC Trend Tracker

Transcription

1 Lee NYC Trend Tracker 3Q 2012

2 MANHATTAN REAL ESTATE MARKETS MIDTOWN MIDTOWN SOUTH DOWNTOWN

3 Lee NYC Trend Tracker Five things to think about when thinking about NYC real estate If you re reading this hot off the press, the national election is still two weeks away. Someone will be president, of that we can be sure. And the presidential debates will be over, of that we can be grateful. How will the national election affect NYC commercial real estate? The answer is: not much. Historically, the big three measures of the market absorption, vacancy, rental rates do not swing dramatically after national elections. Figures may swing, but not necessarily because of who gets voted in Midtown South v. Midtown + Downtown Quarterly Leasing Activity 0 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q Midtown South Available Supply (in millions) Direct Midtown and Downtown Sublease One: The national election. Going back to 1996 Clinton s last election vacancy dropped only three-tenths of a percent from 10 percent in the fourth quarter to 9.7 percent in the first quarter of But that was before the Russian financial crisis of In 2000 remember the dot. com boom? vacancy was 4.3 percent in the fourth quarter but increased to 5.9 percent by the first quarter of 2001 remember the dot.com bust? By 2004 the second Bush s second election vacancy was 9.7 percent in the fourth quarter and moved down only four-tenths of a percent by the first quarter. We were still slowly righting ourselves after And after Obama s first election in 2008, vacancy went from 6.8 percent in the fourth quarter to 7.6 percent in the first quarter of We were still reeling from the financial crash that started in From 1996 onward, the dips and swells in vacancy if they can be called such can be traced to other factors, little of which have to do with a national election. We don t expect much change from our current third quarter 8.8-percent vacancy rate through the first quarter of We still will be faced with at least two wars, crippling national debt, and an unresolved European financial crisis, not to mention slowdowns in the economies of India, Japan, and China this country s new bank. Unless, of course, something else happens. Which is why we don t prognosticate; we track. Market Snapshot Vacant SF 35.6 MM Available SF 48.5 MM Asking Rent $58.52 PSF Two: The mayoral election. Something could happen with the next mayoral election, though, just a year away. Over the past 20 years business owners, financial leaders, and real estate professionals have benefitted from two business-friendly mayors. Though it is too soon to speculate who the final candidates will be, the race most likely will be between politicians more similar to those from past races who may not advocate for Wall Street and business the way former Mayor Giuliani and Mayor Bloomberg have. Currently, Councilwoman Christine Quinn, best known for championing issues that affect working-class families, small business, affordable housing, and early childhood education is the front runner for the Democratic Party. Manhattan Borough President Scott Stringer and William Thompson Jr., who lost to Bloomberg in 2009, also appear to be in the running on the Democratic ticket, as are Public Sublease SF 10.8 MM

4 Submarket Inventory* Vacany Rate Availability Rate** Sublease Availability Under Construction Direct Asking Rent Sublease Asking Rent East Side 23,505, % 10.1% 1.8% $61.58 $46.00 Grand Central 53,998, % 14.9% 3.5% 315,000 $59.62 $64.70 Midtown West 13,115, % 15.1% 6.0% 1,052,150 $60.53 $46.66 Plaza District 42,227, % 14.9% 3.3% $88.38 $68.42 Rockefeller Plaza 22,607, % 12.8% 3.6% $78.92 $53.72 Times Square 42,493, % 10.7% 2.6% $67.57 $52.29 Midtown 197,948, % 13.2% 3.3% 1,367,150 $71.26 $57.32 Chelsea 17,939, % 6.9% 1.0% $47.61 $41.72 Gramercy Flatiron 28,831, % 7.9% 1.6% $56.20 $41.68 Hudson Square / Tribeca 14,659, % 10.2% 2.9% $55.15 $50.04 Murray Hill 12,561, % 8.6% 2.3% $44.67 $30.00 Penn Garment / Penn Station 49,388, % 11.2% 2.1% $43.83 $35.84 SoHo / NoHo 8,303, % 10.4% 3.4% 400,000 $57.00 $44.02 Midtown South 131,683, % 9.5% 2.0% 400,000 $49.52 $45.88 City Hall / Insurance 13,727, % 10.9% 1.2% $35.15 $35.65 Financial District 38,038, % 16.0% 2.7% $40.65 $29.04 World Trade Center / World Financial Center 24,928, % 9.1% 2.0% 8,265,630 $38.56 $28.08 Downtown 76,694, % 12.8% 2.2% 8,265,630 $39.24 $29.10 Manhattan Overall 406,326, % 11.9% 2.7% 10,032,780 $58.85 $52.78 Advocate Bill de Blasio, and City Comptroller John Liu. As for the Republicans, John Catsimatidis, owner and CEO of Red Apple Group and Gristede s, has been mentioned as a front runner. Former State Democratic Senate Majority Leader Malcolm Smith has vocalized interest in running and has approached both the Republican and Independent Parties. And Tom Allon, the Manhattan Media publisher and now a registered Republican, just added his name to the fray in support of progress, reform and good government ahead of party. Maybe 2013-NYC will mimic 1980-USA if actor Alec Baldwin throws his hat into the ring and wins. But that is still four more quarters of real estate activity away. Three: Midtown South s cool factor. And history does repeat. If you can remember a time before ear buds, before text was a verb, before the dot.com bust of 2000, before Brooklyn was cool and then it wasn t, then you can remember a time before Midtown South was cool. A time when Midtown South was exactly what it still is: a neighborhood of old low-rise office buildings, with small floor plates and lots of interior columns, poor lighting, low ceilings, and woefully inadequate infrastructure to support the demands of today s office tenants without serious upgrades. The difference between then and now is the rent. The neighborhood is considered cool by its tenants the tech and new-media world and they are, in every sense of the vernacular, cool. Steve Jobs and Bill Gates and Mark Zuckerberg changed our world. And they opened the floodgates of invention in every realm of communication, and those ideas became companies, and those companies need space. Before those companies go public or join the ranks of the Fortune 500 uptown in Midtown they need smaller cheaper space. Welcome to Midtown South. Where the amount of office space is finite, where your friends who started their companies before you did already are, where you will pay more than they do because there is less space left to

5 rent but where you ll still pay a lot less than Midtown, and where you can be considered as cool as your neighbors. Until they depart for better digs, or simply depart. Let s wait and see whether Midtown South has the legs to sustain what s been dubbed a trend, but is still just a fad. Five years from now when, maybe, plans for making Bloomberg s up-zoning of Midtown to raze and rebuild our antiquated building stock in that market may actually be on the boards remembering Midtown South s hotness likely will garner the same blank stares as referring to the time Fonzie jumped the shark. All fads come to an end. Some move from trend to establishment. Some jump the shark. Midtown South should strap on its life vest. Four: Volume. Velocity. Vacancy. Veracity. One long-time anchor tenant of Midtown South, Credit Suisse which occupies 3 million square feet in three buildings in Gramercy-Flatiron, chose not to pay an inflated rent once its lease is up in 2017 and is leaving the submarket now. Whether its exit helps or hinders Midtown South is yet to be determined. But its departure allows entry for other large tenants, something that market has been lacking. If the Credit Suisse space is not filled, vacancy in Midtown South will soar. But some landlords in Midtown South are still betting on a healthy market. Recently, property owner William Macklowe Co. partnered with Principal Real Estate Investors to purchase 386 Park Avenue South in Gramercy-Flatiron from Savannah and Monday Properties for a reported $111.5 million dollars. In Chelsea, Owner SL Green expanded its presence in Midtown South with the purchase of 635 and 641 Sixth Avenue from Atlas Capital Group. The two buildings were purchased for $173 million, $648 per square foot. Microsoft is in talks with SL Green to lease 22,000 square feet at 641. Asking rents in Chelsea currently average $47.61 and overall Midtown South asking rents are $49.52, up 15 percent from early 2010, before the influx of tech firms. As tenants are priced out of Midtown South some are looking in Grand Central, which qualifies as Midtown. Some of the more corporate tech companies have chosen to stay in Grand Central rather than move to Midtown South, including Salesforce, which relocated from 16,000 square feet at 140 East 45th Street to 685 Third Avenue, with one of the largest leases in Midtown for the third quarter: 74,349 square feet. Smaller creative companies are finding space on the side streets around Grand Central that offer the loft-style environment and lower rents that first attracted their colleagues to Midtown South. Asking rents of $59.62 are comparable to some of the prime spaces in Midtown South, but the higher availability rate of 14.9 percent, compared to Midtown South s 9.5 percent, are encouraging landlords to be more generous with concessions. The west side of Midtown is in a holding pattern. Since the start of the year, new space has flooded the market along Avenue of the Americas, predominately in 1271, 1301, and There may be more to come, but the numbers balance out with the likes of Chadbourne & Parke LLP signing the largest lease in Midtown in the third quarter at 200,000 square feet in 1301 Avenue of the Americas. Another segment of Microsoft has generated buzz here too for its 200,000-square-foot-requirement. Currently located at 1290 Avenue of the Americas, this group of Microsoft has been approached by the building s owners to renew. But the Company has reportedly been in discussion to lease space at 11 Times Square, a move that would be a major coup for that property given its over 600,000-square-foot-vacancy since it was completed in The software giant also expressed interest in Boston Properties 250 West 55th Street building, scheduled for completion late next year. Boston Properties is said to be finalizing negotiations with law firm Kaye Scholer LLP for a 260,000-square-foot lease. Kaye Scholer LLP must relocate from 425 Park Avenue by 2015 when the building is due to be razed. A first step in Mayor Bloomberg s up-zoning initiative? Five: All of the above. *Lee & Associates NYC bases its building Inventory on buildings larger than 100,000 sf in Midtown, and larger than 50,000 sf in Midtown South and Downtown. **Availability Rate represents space available within the next 12 months from date of issue of this Trend Tracker. Information contained in this document has been compiled from sources believed to be reliable. Lee & Associates NYC accepts no liability or responsibility for the accuracy or completeness of the information contained herein and no reliance should be placed on the information contained in this document.

6 James Wacht President Peter Braus Managing Principal Joel Herskowitz Chief Operating Officer Howard Rosen Vice Chairman / Principal hrosen@lee-associates.com John Cannon Vice Chairman / Principal jcannon@lee-associates.com Dennis Someck Executive Managing Director / Principal dsomeck@lee-associates.com Mitchell Kunikoff Executive Managing Director / Principal mkunikoff@lee-associates.com Kenneth Salzman Senior Managing Director / Principal ksalzman@lee-associates.com Elizabeth Haukaas Managing Director Corporate Communications ehaukaas@lee-associates.com Lesley Kamnitzer Research Manager lkamnitzer@lee-associates.com Lee & Associates NYC 600 Madison Avenue, Suite 300 New York, NY nycinfo@lee-associates.com