Midtown companies continue migration to Lower Manhattan

Real Estate Weekly,  Oct 17, 2007  

• E-mail
• Print
• Link

[ILLUSTRATION OMITTED]

Lower Manhattan continued its strong performance in the third quarter of 2007, posting a robust 1.2 million square feet in office leasing activity.

Tenants relocating to the downtown office market accounted for nearly a third of all leasing activity in Lower Manhattan this quarter.

"The tremendous interest in downtown office space is the direct result of the ongoing escalation of rents in midtown," said Robert R. Douglass, chairman of the Downtown Alliance.

"Rents for Lower Manhattan office space are less then two-thirds the rates in midtown, which saw rents climb 40% in the past year. If you run a company that needs to renew a lease but is concerned about your bottom line, the downtown office market looks like a great option."

While leasing volume in the third quarter of 2007 was down approximately 600,000 s/f from levels seen at this point in 2006, there were a number of very large deals completed in 2006 for office space downtown that more than account for the difference. These included Moody's Corp. signing a lease for around 600,000 s/f at 7 World Trade Center, and the city of New York's Department of Transportation taking approximately 421,000 s/f at 55 Water St.

Companies expanding in or relocating to Lower Manhattan have had a dramatic impact on the downtown office market. Since early 2005, 171 firms from a wide variety of industries have relocated to Lower Manhattan from elsewhere, representing nearly four million square feet in office leasing activity.

The FIRE, or finance, insurance and real estate, sector is still the leading private employment sector in Lower Manhattan but the professional services industry has been catching up.

"Professional services companies, and law firms in particular, have been a major driver of relocation activity to Lower Manhattan," said Douglass. "Since the first quarter of 2005, professional services firms have comprised 40% of all relocations downtown from elsewhere, compared to FIRE-sector firms, which accounted for 14% of firms moving to Lower Manhattan."

with tenants continuing their push for lower cost office space in Lower Manhattan, vacancy rates continued to decline. According to Cushman & Wakefield, vacant Class A office space plummeted 14% in the past quarter, dropping to 5.4% in the third quarter of 2007 from 6.3% at midyear 2007. Overall vacancy rates remained stable at 6.7%. Average asking rental rates for Lower Manhattan's Class A space rose 1.7% in the past quarter, increasing to $51.43 per square foot in the third quarter from $50.59 per square foot at midyear 2007, according to Cushman & Wakefield.

Fueled by rising rates for Class B office space, overall rents grew by 3% during the same time period, expanding to $45.86 per square feet from $44.48 per square feet.

Overall rents for Lower Manhattan office space have increased 27% over the past year. They were recorded at $36.18 per square foot during the third quarter of 2006.

COPYRIGHT 2007 Hagedorn Publication
COPYRIGHT 2008 Gale, Cengage Learning