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Manhattan office leasing in the first quarter is poised to be the lowest in almost three years as Wall Street cut jobs and needed less space, according to preliminary data from brokerage Studley Inc.
Agreements will be signed for the rental of about 5.7 million square feet (530,000 square meters) this year through March, according to New York-based Studley’s projection. That’s the smallest three-month tally since the 4.5 million square feet leased in the second quarter of 2009, months after the credit crisis pushed Lehman Brothers Holdings Inc. (LEHMQ) into bankruptcy and froze demand for space in the biggest U.S. office market.
New York’s financial companies delayed leasing decisions beginning in August amid concerns that Europe’s debt crisis would spread and that U.S. regulatory reforms might cut into business. Global banks and financial firms have announced plans to eliminate more than 150,000 jobs since June, data complied by Bloomberg show.
“As the saying has gone for many years, as financial services goes, so does New York City,” Mitchell Steir, Studley’s chief executive officer, said in a telephone interview.
Growing information technology and media firms have kept the market from sliding further, Steir said. He cited rising demand from such companies as Google Inc. (GOOG), which bought 111 Eighth Ave. in Manhattan’s Chelsea section in 2010. Google, the Mountain View, California-based owner of the world’s most popular search engine, already occupied 550,000 square feet in the building and has been gradually taking over the rest as leases expire.
Brookfield Office Properties (BPO) and Boston Properties Inc. (BXP) are among landlords waiting to see if the pickup in the U.S. economy and stock market translates into increased demand for their Manhattan properties.
Brookfield has been negotiating with Morgan Stanley (MS) for more than a year over the investment bank’s lease at 1 New York Plaza, a 2.6 million-square-foot tower near the foot of Manhattan.
Morgan Stanley, which already rents space in the building, has been in talks to take some of the 540,000 square feet that Goldman Sachs Group Inc. (GS) left behind when it moved in 2010 to its new headquarters on West Street, people with knowledge of the matter have said.
Ric Clark, Brookfield’s CEO, addressed the negotiations at an investor conference last week, without identifying Morgan Stanley as the tenant.
“I can’t really comment on transactions that are in the works,” Clark said at an investor conference last week. “But we still have a high degree of confidence that we will get that lease that’s been rumored put to bed.”
Melissa Coley, a spokeswoman for New York-based Brookfield, declined to elaborate on Clark’s statements. Mark Lane, a Morgan Stanley spokesman, declined to comment on the talks.
Brookfield also is seeking tenants for about 3 million square feet of former Merrill Lynch & Co. (MER) offices at the World Financial Center in lower Manhattan while marketing space at its Manhattan West development in Midtown. Construction won’t begin on the two skyscrapers planned at Manhattan West until Brookfield secures a tenant, Clark said at the conference.
Mortimer Zuckerman’s Boston Properties, owner of 8.3 million square feet of Midtown skyscrapers, restarted construction last year on 250 W. 55th St. after leasing about 18 percent of the 1 million-square-foot tower to Morrison & Foerster LLP (1124L), a law firm. It has yet to announce any additional deals there.
Arista Joyner, a spokeswoman for the Boston-based company, declined to comment about the building.
Manhattan’s office market is “very much stable,” Doug Linde, Boston Properties’ president, said at last week’s investor conference.
“Tenants are just not in a rush to make a decision,” he said. “They feel like the market is where it is. It’s not getting better, it’s not getting worse, and time is on their hands.”
Steir of Studley called the leasing slowdown “a healthy digestive period” following a recovery that threatened to get too heated. He said he would be more concerned if the pace of leasing had continued, “because it started to get a little too silly too quickly.”
Agreements were signed for 18 million square feet in the first half of 2011, according to Studley. The market was boosted by Conde Nast Publications Inc.’s decision to take 1 million square feet at 1 World Trade Center, now under construction in lower Manhattan, and Nomura Holdings Inc. (8604)’s 900,000-square-foot deal at Worldwide Plaza, a West Side tower.
Nomura may return about 160,000 square feet of offices to the landlord, the Commercial Observer, a weekly trade newspaper, reported on March 16.
This year’s biggest lease so far is Bank of America Corp.’s renewal of 345,000 square feet at 114 W. 47th St., according to Studley, which specializes in representing tenants. The largest new deal was by Investment Technology Group Inc. (ITG), for 132,000 square feet at 1 Liberty Plaza, a downtown building owned by Brookfield.
Conde Nast took an additional 133,000 square feet at 1 World Trade Center, the biggest lease by a media company in the quarter, Studley said. In another deal by a creative firm, Digital Generation Inc. (DGIT), an advertising distributor, agreed to rent 86,000 square feet at 1633 Broadway, a tower north of Times Square.
Creative industries -- communications, business services, fashion, advertising, information technology and education -- have averaged 42 percent more leasing annually since 2007 than financial services, according to a Studley analysis. From 2000 to 2006, financial services out-leased creative companies by 19 percent.
Availability, defined as empty space plus offices that will become vacant in 12 months, was projected to be 10.8 percent in the first quarter, down from 11.1 percent in the fourth quarter and 12.2 percent a year earlier, Studley said. Average asking rents will be little changed from the fourth quarter at $50.06 a square foot.
Demand should pick up in the second half of the year as positive U.S. economic trends take hold and give companies the courage to sign big leases, said Bruce Mosler, chairman of global brokerage at New York-based Cushman & Wakefield Inc.
“As the economy begins to stabilize, you’re going to begin to see the big folks stir,” Mosler, who leads the leasing team for Brookfield’s Manhattan West project, said in a phone interview.
“It’s going to be the direct opposite, or the inverse of last year, where we had an incredibly strong start, and we tapered towards the fourth quarter,” he said. “You’re going to see a slower start and a very solid finish.”
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