The moribund Manhattan office market regained a pulse in the first quarter, after a year that saw only eight properties sold for more than $30 million.
So it is no surprise that real estate services company CB Richard Ellis Group Inc
The market continues to suffer from a shortage of investment grade property for sale, as lenders allow highly leveraged owners to extend their loans instead of foreclosing and others do not see a reason to sell.
With just a week left in the first quarter, five office buildings sold for more than $30 million, and more are on the market.
Potential investors and sellers are eyeing the sale of three of the four buildings currently on the market: 340 Madison Ave., 600 Lexington Ave. and 125 Park Ave.
The market will be watching them for an indication of pricing, said William Shanahan, vice chairman of CB Richard Ellis Investment Properties Institution Group.
You may see more properties hit the market now, he said.
Unlike some more recent sales -- such as the sale of The Helmsley Carlton Hotel for $170 million by the Helmsley estate -- there are no exceptional circumstances for these sales.
If we get a couple of premier transactions in Midtown that basically reprice the market, I think you'll see a flurry of lenders open up in Manhattan, said Dan Fasulo, managing director of U.S. commercial real estate research firm Real Capital Analytics. There are more and more investors and lenders worried that Europe is becoming fully priced.
Many investors today believe the free-fall in rent is stabilizing. Asking rents in February were $48.78 per square foot, down from their peak level of $71.92 per square foot in July, CBRE said.
CBRE Econometric Advisors, the firm's research arm, forecasts that average New York City metro office rents will rise 2.2 percent compared with a year earlier.
Landlord concessions also are down or stabilizing. A three-month rolling average showed that free rent peaked in August at 8.33 months in Midtown and was eight months in February, CBRE said. Tenant improvement -- money landlords kick in to turn a floor into office space for a particular tenant
-- fell to $54 per square foot in February, down from $65.24 per square foot in July 2009.
Manhattan office vacancy is expected to stabilize this year, from 9.9 percent in February 2010, which was up from 4.84 percent in January 2008, according to CBRE Econometric Advisors.
CBRE also expects prices to begin to recover for well-leased, prime office property and that cap rates, or yields that trade inversely to price, will fall to about 5.5 percent to 6 percent, down from 6.5 to 7.5 percent in the year-earlier period. Last year's cap rate was an estimate because of a lack of prime properties traded last year.
CBRE also sees the debt markets freeing up somewhat, but targeted at the best properties. Of the eight properties that sold for above $30 million last year, four obtained financing from sellers. Two were all-cash deals, and two were new mortgages from offshore lenders.
CBRE also sees properties trading hands as troubled loans are sold at discount and new owners will force sales or foreclose to get their hands on the property. But CBRE predicts there will be fewer distressed sales than some had forecasted just a year earlier.
(Reporting by Ilaina Jonas; Editing by Matthew Lewis, Bernard Orr)