NEW YORK - Manhattan commercial real estate leasing and sales activity surged in the first quarter, as companies and investors sought to lock in good deals on falling rents and lower prices ahead of a recovery, a quarterly report by real estate services company Cushman & Wakefield said.
During the quarter, tenants leased 5.7 million square feet of office space, up 3 million square feet, or 84 percent from the first quarter of 2009, according to the report released on Tuesday. Leasing rose 14 percent from the prior quarter, Cushman & Wakefield said.
In the first quarter we saw the continuation of a trend that began in the second half of 2009 as companies started to pull the trigger on leasing decisions, said Joseph Harbert, Cushman & Wakefield's chief operating officer for the New York Metro Region.
That's likely to be positive news for some of Manhattan's largest landlords such as Boston Properties Inc, Vornado Realty Trust and SL Green Realty Corp.
On the sales side, investors bought or were under contract to buy $3.3 billion of Manhattan commercial property, nearly the amount sold in all of 2009. Sales rose 200 percent over the $1.1 billion closed or under contract in the first quarter of 2009. Sellers were a bit more willing to do deals, the firm said
While these investors were previously on the sidelines, today we see an increasing universe of investors, domestic and global, proactively seeking to invest now, Harbert said. While supply is starting to loosen, demand still far outstrips supply.
The vacancy rate, however, rose to 11.6 percent at the end of March, up from 11.1 percent at the end of 2009 and above the 9.6 percent in the year-earlier quarter. New construction, such as 11 Times Square, a new 1 million square feet-plus skyscraper, was a prime driver of higher vacancy, Cushman & Wakefield said.
After strong activity at the end of 2009, we expected continued demand in the first half of 2010, Harbert said.
Rents continued to fall, reaching the lowest level in three years. At the end of the first quarter, the overall average asking rents in Manhattan fell to $55.38 from $55.52 at the end of December and from $65.01 in the first quarter 2009.
All in all, asking rents are down 24 percent from their peak of $72.97 in the third quarter of 2008.
In Midtown Manhattan, the largest of New York's office market, first-quarter leasing reached 4 million square feet, up 117 percent from the first quarter of 2009. The vacancy rate rose to 12.6 percent from 12.0 percent at the end of December, driven by new construction and several new large blocks of available space added to the market.
Average asking rent was $61.93 per square foot, a hair above $61.82 at the end of December and strikingly below $73.31 per square foot a year ago. Since the height of the market in the first-quarter 2008, average effective rent for top quality buildings, which factors in months of free rent and cost to build an individual tenant's space, is down as much as 42 percent, Cushman & Wakefield said.
New leasing activity in Midtown South totaled 924,000 square feet in the first quarter, up 190 percent from the same period last year. The vacancy rate in that market fell to 9.9 percent from 10 percent at the end of December and 8.1 percent a year earlier. Asking rent was $46.32 per square foot, a step down from $47.17 in the prior quarter and off of $52.48 in the first quarter 2009.
Downtown Manhattan continued to deteriorate, with leasing falling 18 percent year over year. The vacancy rate rose to 10.0 percent from 9.6 percent at the end of December and 8.1 percent a year earlier. Asking rent stood at $38.95 per square foot down from $40.36 the prior quarter and $44.58 a year ago.
Manhattan's traditional industries accounted for the most leasing activity in the first quarter. Leasing by financial services firms rose 21 percent; law firms rose 14 percent; government, education and social services organizations rose 8 percent; and advertising firms increased 7 percent. (Reporting by Ilaina Jonas)