Availabilities increase in most Midtown districts.

Through the first half of 1995, Manhattan office market performance lacks the broad-based improvement seen in 1994. With availabilities increasing in most Midtown districts, net absorption for the most recent three month period through May was an anemic negative 868,731 square feet. Year-to-date net absorption totals negative 22,298 square feet. Year-over-year net absorption through May was 759,706 square feet.

Availabilities were up 3 percent, with the Midtown total at 12.6 percent, up from 12.3 percent three months ago. The bulk of this increase came from some 796,000 square feet of additional direct space placed on the market. Sublet availabilities in the overall Midtown market remain virtually unchanged.

Weighted average rental rates improved, however, closing in May at $31.40 per square foot, up 3.1 percent from three months ago. Slowly strengthening rents have been a consistent feature of this market, improving in the year-over-year period though May by soma 9.8 percent on a weighted average basis. By contrast, weighted average sublet rents ended May at $30.98 per square foot, up 10.1 percent from $28.14 per square foot in the same period, and underscoring the quality of select sublet availabilities throughout Midtown. Weighted average rents in Midtown have risen by 3.8 percent since the beginning of the year.

District Analysis

Big declines in sublet availabilities in the Eastside District, removing more than 600,000 square feet from the market in the year-over-year period through May, have lowered the availability rate here to 9.7 percent, from 10.3 percent at the beginning of the year.

Despite the reduced supply of sublet product, total net absorption ended May at a negative 83,275 square feet, in large part due to the addition of 151,306 square feet of direct space. Net absorption in the year-over-year period through May was 933,225 square feet.

Weighted average Eastside rents ended May at $32.56 psf, up 0.2 percent from $32.48 at the beginning of the year.

The Park Avenue District recorded it's first increase in availabilities in over 12 months, with available space up 48.7 percent since February. The district ended May with a 8.7 percent availability rate, it's highest level in over a year. Net absorption ended May at a negative 528,550 square feet for the year thus far, with 147,789 square feet put back on the market in the year-over-year period through May.

Park Avenue weighted rental rates, the highest in the city after Upper Fifth/Madison Avenue, ended May at $42.89 per square foot, up 6.7 percent from just three months ago. Rents have increased 7.4 percent since the beginning of the year.

With Park Avenue no longer the tightest Midtown district, that position has now been assumed by the Westside District, where strong leasing has brought the availability rate down to a healthy 8 percent, or 1.82 million square feet of total inventory. The availability rate was 9.4 percent just three months ago, and 10.5 percent at the beginning of the year.

District-wide net absorption over the past three months totaled 335,998 square feet, with over 500,000 square feet absorbed since the beginning of the year. With year-over-year net absorption through May totaling 1,045,955 square feet, available space has declined by 36.5 percent.

Growing availabilities approaching 400,000 square feet in both the direct and sublet markets forced the Grand Central District availability rate to 17.7 percent in May, up from 16.8 percent just three months ago, and from 16.5 percent at the beginning of the year. The availability rate was 18 percent exactly one year ago.

Net absorption in this district is weak, as expected, with just under 518,074 square feet placed on the market since January. Weighted average rents ended May at $31.04 per square foot, up 3.6 percent from $29.97 per square foot at the beginning of the year.

The addition of almost 865,000 square feet of direct product since January lifted the availability rate in the Sixth Ave./Rockefeller Center corridor to 12.9 percent, from 10.8 percent in January. The rate was 9.8 percent exactly one year ago.

District rental rates are higher, at $39.51 per square foot, up 6.7 percent from $37.04 per square foot at the beginning of the year. Rental rates in this district are 14.8 percent higher than exactly one year ago, when they were $34.41 per square foot.

Upper Fifth/Madison Avenue ended May in somewhat better shape, with year-to-date net absorption of 568,802 square feet. The availability rate stands at 14 percent, or 3.4 million square feet of total inventory. Weighted average rental rates stand at $43.30 per square foot, up 3.3 percent from $41.93 per square foot at the beginning of the year.

The Penn Station/Garment/Convention Center District posted 451,613 square feet of net absorption in the first five months of the year, a 5.5 percent reduction in available space. The availability rate stands at 12.1 percent, down from 12.8 percent at the beginning of the year.

Weighted avenge rental rates stand at $19.67 per square foot, down 3 percent from $20.27 in January. This district, along with the Westside, have sublet prices that exceed prices for direct space.

Downtown Manhattan

This market provides office facilities to the financial services, insurance, and legal industries as well as Federal, State and City Government. It contains 102.8 million square feet of competitive office stock in 173 buildings.

Class A Downtown inventory totals 65.4 million square feet in 62 buildings, 63.6 percent of the total competitive office stock.

Current Market Conditions

Whereas Midtown has made the move towards recovery, and despite slightly improved net absorption over the past 18 months, Downtown Manhattan continues to suffer from excess supply in both Class A and B space, with an overall availability rate that has exceeded 20 percent for the past four years.

Casting a pall over the submarket are the expected consolidation of Federal, state and city tenants, and continued contraction and/or emigration out of Downtown, of major financial services firms.

Downtown Manhattan ended April, 1995 with a 20.3 percent availability rate, down slightly from 20.5 percent at the end of 1994, and a 20.7 percent rate in the year-over-year period to April.

The submarket has absorbed 214,784 square feet in the first four months of 1995 - a rate that is 11.5 percent ahead of the 578,014 square feet absorbed in all of 1994. Net absorption for the year-over-year period (April, 1994-April, 1995) was 437,381 square feet.

Prices have stagnated and continue to reflect relatively weak demand. Weighted average asking rents ended April at $25.90 per square foot, down 3.8 percent from $26.94 in December, 1994, and 3.9 percent from the $26.96 per square foot level of April, 1994. By way of contrast, weighted average rents at the end of 1991 were 13.4 percent higher, at $29.89 per square foot.

The Class A market is equally slack, ending the month of May with a 17.8 percent availability rate, representing some 11.6 million square feet. Availabilities at the end of 1994 were 11.8 million square feet, or 18 percent.

In retrospect, 1994 may represent a peak demand year in the 1991-1995 period, with Class A net absorption coming in at 175,268 square feet through May, 1995, well off the pace of 1994's 826,202 square feet.

Weighted average rental rates in Class A space, at $31.77 per square foot at the end of May, reflect slack demand too, down 0.4 percent from $31.90 at 1994's end. Class A weighted rents fell 2.8 percent last year.

Interestingly, the slight improvement in the overall availability rate can be attributed solely to improvement in sublet availabilities, which have improved to 1.5 percent of total Class A stock, down from 2.1 percent at the end of 1994.

The Financial District absorbed 120,749 square feet through May and 542,593 square feet in the year-over-year period through May, 1994. This district continues to have the highest availability rate of any district Downtown. Availabilities ended the month of May at 23.9 percent of total inventory, an improvement from 24.2 percent at year-end 1994, and from 25.2 percent exactly one year ago.

Financial District inventory accounts for 43 percent of total downtown inventory, yet, at 10.6 million square feet, availabilities are a disproportionate 51 percent of total Downtown availabilities.

Weighted avenge rents ended at $25.57 per square foot, down 5.3 percent from $27 in December, 1994.

The Word Trade/World Financial Center District ended the period in the best shape, absorbing 301,324 square feet through May, 1995. The district ended the month of May with a 16.1 percent availability rate, down from 16.8 percent in December, 1994, but above the 15.8 percent of one year ago.

Weighted rents here fell 3.0% through May, ending at $27.75 per square foot. Sublet rents rose 0.5 percent, though, to close at $29.56 per square foot.

The Insurance District experienced negative net absorption of 207,289 square feet after the first five months of 1995, ending with a 20.8 percent availability rate, up from 19.6 percent in December, 1994. The year ago availability rate was 20.9 percent.

Despite vacancies that have exceeded 20 percent since 1990, there are some bright spots in the submarket. The City Hall District, for example, boasts a current availability rate of 8.2 percent, due mostly to steady demand from law firms and associated businesses that utilize the court and government infrastructure.

Absent a turnaround in the consolidation trend hitting financial services firms, the longtime engine of growth for Lower Manhattan, prospects for recovery Downtown remain mixed. Additionally, the aging stock of office product will continue to anchor this market.