Bloomberg News

Manhattan Office Leasing Declined 36% From Second Quarter

October 04, 2011

(Updates with Jones Lang LaSalle report starting in eighth paragraph.)

Oct. 4 (Bloomberg) -- Manhattan office leasing fell 36 percent in the third quarter from a 12-year high in the previous three months as demand retreated from what had been a “phenomenal” pace, Cushman & Wakefield said.

A total of 6.4 million square feet (594,600 square meters) of leases were signed in the three months ended Sept. 30, the New York-based brokerage said in a statement today. About 10 million square feet of offices leased in the previous period, the most since the third quarter of 1999, as the market was boosted by Conde Nast Publications Inc.’s 1 million-square-foot deal at 1 World Trade Center in lower Manhattan, Cushman said.

Cutbacks at financial firms are expected to temper leasing demand in Manhattan, the biggest and most expensive U.S. office market, brokerage Cassidy Turley said in July. Global financial companies have announced plans to cut more than 120,000 jobs this year, according to data compiled by Bloomberg Industries.

“Financial services has been challenged,” Ken McCarthy, Cushman’s managing director for New York research, said at a briefing today. “As uncertainty increases, businesses in general, and large users in particular, have taken a step back and are being more cautious.”

While deals declined from the second quarter, the three months through September marked New York’s strongest third quarter for office leasing since 1998, Cushman said in the statement.

‘Back to Normal’

“We had a great first quarter, a great second quarter, a lot of good deals got done,” said Joseph Harbert, Cushman’s chief operating officer for the New York region. “We’re back to normal. I’m not troubled by this.”

Office rents rose and vacancy declined in Manhattan, according to Cushman. Landlords sought an average of $56.15 a square foot, up 1.1 percent from the second quarter and 4.4 percent from a year earlier. Vacancy fell to 9.3 percent from 9.4 percent in the previous three months and 10.9 percent a year earlier.

Rent increases are concentrated among “trophy” buildings in Midtown, brokerage Jones Lang LaSalle Inc. said today in a separate statement. Rents for the highest-quality Midtown skyscrapers averaged $85.15 a square foot in July, an increase of 9.7 percent this year, compared with $53.56, a 2.6 percent gain, for all of Manhattan, according to the firm.

Trophy Buildings

“Smaller floorplates at the top of the city’s trophy buildings are performing the best out of all other office market segments,” James Delmonte, research director of Jones Lang’s New York office, said in the statement.

The company, based in Chicago, defines trophy office buildings as those that were built or significantly renovated since 1985, are in high-profile locations or have recognized tenants or architectural significance.

Delmonte questioned whether space demand is high enough to keep rents climbing in the face of recent stock-market volatility and concern that the economic recovery has stalled.

“If the high amount of volatility continues and asking rents are to decline, the first declines could be seen in the trophy market,” he said.

Broken down by area, Cushman said, Midtown rents had the biggest increase, gaining 1.1 percent from the second quarter to $64.07 a square foot. Lower Manhattan rents averaged $39.10 a square foot, down 0.7 percent from the previous three months. Vacancy rates in both markets rose by 0.2 percentage points to 10 percent in Midtown and 9.9 percent downtown.

Midtown South

The vacancy rate in Midtown South, the tightest U.S. office market, declined to 6.1 percent from 7.1 percent in the previous quarter. The area is roughly between 30th and Canal streets.

The quarter’s biggest deals include a 271,247-square-foot lease by Pearson Plc, owner of the Financial Times, at 330 Hudson St. in Midtown South. Investment firm Oppenheimer & Co. agreed to take 267,647 square feet at 85 Broad St., the former Goldman Sachs Group Inc. headquarters in lower Manhattan.

Besides the Conde Nast deal, second-quarter leases included an agreement by Nomura Holding Inc. for 901,000 square feet at Worldwide Plaza in Midtown.

--With assistance from Laura Marcinek in New York. Editors: Christine Maurus, Larry Edelman

To contact the reporter on this story: David M. Levitt in New York at

To contact the editor responsible for this story: Kara Wetzel at

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