By Orlando Lee Rodriguez
Leasing activity below Canal Street has risen significantly during the first quarter of 2013, according to reports from both Colliers International and Avison Young.
Given that many downtown buildings were offline at the end of 2012 after Hurricane Sandy, the uptick was no surprise.
But analysts say that, despite the aftermath of the storm, positive absorption downtown has now risen for three straight quarters, including the final three months of 2012.
“When you’re comparing the first quarter to the fourth quarter, its unfair,” Joseph R. Harbert, president of the eastern region for Colliers International said. “In the fourth quarter, we all faced what was happening with Sandy. What you want to look at is where there is positive absorption and there are several quarters in a row where we’ve seen that. Tenants are coming from Midtown South to Downtown.”
Leasing for the first quarter of 2013 is up 28% compared to last year at the same time, with most of the action taking place within the Financial district and World Trade Center, according to Colliers.
Overall, downtown outperformed Midtown and Midtown South, with Lower Manhattan’s Class-A vacancy rate dropping 14.8% over the past three months, according to Avison Young. Harper Collins signed a deal for 185,000 s/f at 195 Broadway while Conde Nast moved into an 80,000 s/f space at 222 Broadway. Liberty Mutual added 120,000 s/f at 55 Water Street.
“Downtown is certainly the comeback kid, performing notably better than its Manhattan counterparts during the first few months of the year,” said Greg Kraut, principal and managing director of Avison Young’s New York City office. “This is truly remarkable considering the devastation caused by Hurricane Sandy to Lower Manhattan late in 2012, and the significant amount of space that was available downtown just a year ago.”
According to Colliers, rents have remained flat below Canal Street, and with both reports indicating a significantly lower price difference compared to Midtown prices, expectations are that absorption will continue with companies looking for cheaper prices.
“Historically, we have seen that during certain market cycles, the price differentials between downtown average rents and those of midtown reach a point whereby tenants will seize the opportunity to relocate downtown,” said James Delmonte, vice president of research for Avison Young. “Recent market activity indicates that we are currently in the midst of one of those cycles.”
The average rent for a Class-A space rose slightly to $48.90 per s/f from $48.96 per s/f over the first three months of 2013, according to Avison. Vacancy rates were 6.5% with availability hovering around 15.3%, according to Colliers. 14 buildings had at least 250,000 s/f of available space, 12 of them having more than 100,000 s/f available.
The trend is for larger blocks being leased by firms taking advantage of deep discounts. Tenant taking rent averaged at 80% of the landlord asking rent, according to Colliers. Sublease rent rates came in at $33.54 compared to $46.53 for direct rent.
With a plethora of leases by tech and media firms, the current market darlings, midtown south is the neighborhood of the moment with hip, young companies.But with prices running from $86.63 on Park Avenue to $51.73 direct in Midtown South, Harbert questioned the cost of cool.
“People are getting priced out of Midtown South where you can look at rents at $70-$80 a foot. When you can go downtown and get a deal at $38 a foot, that’s a big difference,” said Harbert. “You can save $4 million and move downtown or you can move somewhere in midtown south. The question is what is it going to cost you to be cool.”