Downtown rents up 7 percent; Midtown South remains tight.

According to Insignia/ESG's August Office Market Report, Midtown Manhattan leasing activity was down 40 percent in July, compared to the red-hot market of a year ago. Year-to-date leasing activity, however, is down less dramatically to 8.47 million square feet - a 24 percent drop.

However, with nearly 800,000 square feet of positive absorption for the year, Midtown tenants have fewer choices than they did last year.

Some 1.3 million square feet of space returned or added to the market resulted in negative net absorption of 120,000 square feet in July. Despite this, availability edged up only slightly, to 7.3 percent, from June's record-setting low of 7.2 percent.

Midtown's Grand Central segment led the pack with 520,000 square feet of leasing activity. Three deals made up 60 percent of the volume: Enhance Financial's 121,093 square-foot lease at 335 Madison Avenue; Parker, Chapin, Flattau and Klimpl, LLP's deal for 103,371 square feet at 405 Lexington Avenue; and New York Life Insurance's lease of 74,908 square feet at 420 Lexington Avenue.

Midtown's Park Avenue segment was the second best performer last month, tripling its 1998 leasing activity with 360,000 square feet of volume, thanks to Credit Suisse Asset Managements 229,817 square-foot commitment at 237 Park Avenue. Over the past year, this submarket's availability has dropped to 5.5 percent, while rents have risen by 16 percent. Despite the strong leasing activity last month, Park Avenue experienced only 70,000 square feet of positive absorption, due to the return of 193,930 square feet of space by Bank of New York at 300 Park Avenue.

Despite posting 200,000 square feet of leasing activity in July, the Sixth Avenue/Rock Center segment had negative absorption of 510,000 square feet due to Bell Atlantic's return of 560,420 square leer of condo space at 1166 Avenue of the Americas. As a result, this segment's availability rate increased from 3.7 percent to 5 percent.

New leases of under 25,000 square feet paved the way for Penn/Garment's 170,000 square feet of total leasing activity last month, while the East Side segment experienced a surge in availability with the addition of 371240 square feet at 825 Third Avenue, pushing the East Side's availability rate up to 8.1 percent.

According to Insignia/ESG's August Office Market Report, the Park Avenue submarket posted the highest average asking rent last month at $57.29 per square foot, while the Penn/Garment submarket was the lowest at $30.47.

Downtown Leasing Activity Strong, But Lacks Last Year's Momentum

In spite of decreases in leasing volume and net absorption, other indicators show a healthy Downtown Manhattan office market. Although Downtown's 560,000 square feet of total leasing activity for the month of July was down 80 percent from a year ago, and year-to-date net absorption was only a fifth of last year's total, Downtown's overall availability rate (11.4 percent) continues to fall, and rents (up 7 percent from a year ago) continue to rise.

The City Hall/Insurance segment, which was hampered during the first half of the year by large returns of space, tightened slightly in July. Leasing activity totaling 70,000 square feet contributed to net absorption of 110,000 square feet, pushing the City Hall/Insurance availability rate down a full percentage point to 16.5 percent. City Hall/Insurance's largest lease in July was a 47,260 square-foot commitment by Tradition Government Securities at 75 Park Place.

The Financial District recorded 420,000 square feet of leasing activity in July, the best showing of any Downtown submarket. Nevertheless, this figure is 83 percent short of last year's mark, and year-to-date leasing activity is down 50 percent compared to 1998. Despite a significant addition to supply (two full floors totaling 83,558 square feet at 1 Liberty Plaza), the availability rate in the Financial District continued to fall, standing at 12.7 percent as of the end of July. Rents continued to increase, averaging $32.43 per square foot. Major transactions in the Financial District included Agency.com's lease of 102,000 square feet at 20 Exchange Place; Goldman Sachs' sublease of 56,864 square feet at 125 Broad Street; and Landauer Associates' lease of 31,130 square feet at 90 West Street.

The World Trade Center/World Financial Center saw a 60 percent drop-off in leasing volume compared to 1998, tallying only 70,000 square feet in July. Net absorption was negative 32,000 square feet. WTC/WFC remained Downtown's tightest submarket, however, with a 5 percent availability rate and average asking rents pushed upward to $39.50. Deutsche Bank's 38,000 square-foot commitment at 4 World Trade Center was WTC/WFC's largest lease signing in July.

Midtown South Rents Rise

Leasing activity in the Midtown South office market remained on par with July 1998 at 410,000 square feet. Overall availability, however, was up to 5.2 percent from the 4.9 percent a year earlier. Though a far cry from 1998's 1.37 million square feet of positive net absorption through July, Midtown South's year-to-date absorption continued at positive levels at 120,000 square feet. Average asking rents jumped a whopping $5.27 from last year to $32.87 per square foot.

Although the Flatiron and NoHo/SoHo submarkets recorded the same monthly leasing activity at 120,000 square feet, NoHo/SoHo showed the most marked improvement - five times more than the same time last year. Boosted by VNU USA's 105,214 square-foot expansion at 770 Broadway, NoHo/SoHo saw its year-to-date leasing volume reach an impressive 570,000 square feet - 10 times better than 1998. As a result, availability plummeted from 9.9 to 8.2 percent, even with the addition of 30,000 square feet at 665 Broadway.

Midtown South's Flatiron segment saw its availability rate tighten last month from 4.9 to 4.5 percent, despite a drop in its year-to-date leasing activity and net absorption as compared to 1998. The area's most significant deals were Readers Digest's sublet of 88,000 square feet at 28 West 23rd Street; 44,000 square feet went to True North Communications; and 44,000 square feet to Forbes, Inc.

The Chelsea segment saw 70,000 square feet of leasing activity in July - Midtown South's third highest leasing velocity. This was due in large part to the 36,220 square-foot lease by ACG Communications at 320 West 13th Street Availability in Chelsea remained the highest in Midtown South at 9 percent, but was down four-tenths of a percent from last year.

Monthly leasing activity of 50,000 square feet in the Hudson square/Tribeca submarket was off 30,000 square feet from last July, while the availability rate held steady at 6.7 percent. The only transaction in the submarket came courtesy of InterWorld Corporation's lease at 395 Hudson Street. Still, the area is profiting from the consolidation and renovation of printers' buildings like 160/170 Varick Street, freeing up office space properties with 25,000 square-foot floorplates.

Midtown South's Park Avenue South/Madison square submarket commanded the highest asking rent at $34.80 per square foot, while the Flatiron district had the lowest asking rents at $30.72 per square foot.