Insignia/ESG: leasing up in April for Midtown, Downtown.

Encouraging signs for Midtown Manhattan office leasing continued in April, with activity totaling more than a million SF for the month. Leasing also picked up in Downtown, spurred on by a handful of major signings, but retained a more moderate pace in Midtown South. Space returns slowed to a relative trickle last month and both Downtown and Midtown South recorded positive net absorption as a result.

Midtown's 4.11 million SF of year-to-date leasing activity surpasses by 26% the 3.21 million SF leased in the first four months of 2002. Although clearly recovering, leasing remains well below the robust levels of the late 1990's and 2000. While the market's largest submarket - Grand Central -- typically has tallied more leasing than any other submarket, activity in and around Times Square has picked up compared with a year ago and contributed to Midtown's uptick in leasing.

In Times Square South, leasing has swelled by 89% from a year ago to roughly half a million SF so far in 2003, and Times Square/West Side has seen activity jump five-fold to 600,000 SF, compared with just 120,000 SF leased in January through April 2002- modest totals, to be sure, but a positive turnaround nonetheless.

Even with a pick up in leasing Midtown recorded negative net absorption of 350,000 SF last month. This was primarily the result of new availabilities in the Park Avenue corridor, including 122,000 SF at 153 East 53rd St. being given up by O'Melveny & Myers LLP. The law firm already announced its relocation to 7 Times Square Tower, and occupancy for the floors at 153 East 53rd now falls within 12 months.

Meantime, Downtown (for the second consecutive month) and Midtown South (for the first time since December) both recorded positive net absorption in April. The Downtown market was buoyed by a robust 940,000 SF of leasing led by Health Insurance Plan of Greater New York's 486,000-SF lease in the north tower of 55 Water St. and Teachers Retirement System of the City of New York's 158,000-SF lease in the south tower of 55 Water. In addition to the strong leasing, a handful of significant withdrawals also contributed to Downtown's positive net absorption totaling more than a million square feet. In Midtown South, even with a relatively low 290,000 SF of leasing in April, scant space returns resulted in positive net absorption of 140,000 SF for the month.

Highlights of Insignia/ESG's May 2003 "i on the market" reports include:

* Midtown was the only market with increased availability in April, up 0.2 percentage points to 12.1%. Downtown's availability rate dropped substantially, by 1.2 points to 13.9%, while Midtown South realized a 0.2-point decline to 13.6%.

* Average asking rents held relatively firm last month, declining only minimally in each market Average asking rents decreased by 2% in both Midtown and Downtown -- to $50.72 and $34.00 per SF, respectively -- and a mere 1% in Midtown South to $31.35 per SF.

* Large contiguous available blocks remain plentiful. There were eight blocks larger than 250,000 SF in Midtown and five in Downtown were on the market at the month's close, while only one was available in Midtown South. Throughout Manhattan, 48 contiguous blocks between 100,000 and 250,000 SF were available at the end of April, up from 37 last year at this time.

According to Insignia/ESG's May 2003 "i on the market" report for Midtown:

* Revlon, Inc.'s 151,000-SF sublease from Credit Suisse First Boston (space that was never officially marketed) at 237 Park Ave. topped Midtown's leasing activity in April. Noteworthy transactions in the Times Square vicinity last month included law firm Arent Fox Kininer Plotkin & Kahn, PLLC's 86,000-SF renewal and expansion at 1675 Broadway Despite the overall negative net absorption in Midtown in April, two submarkets -- Fifth/Madison and Grand Central - did see modest positive net absorption of 20,000 and 70,000 SF, respectively. As a result, Grand Central's availability rate declined 0.2 points to 15.3%, though it still remains the highest rate in Midtown. And although average asking rents decreased overall in April, Park Avenue, Fifth/ Madison and Times Square/West Side each saw minor rentals increases during the month. Average asking rents in the tony Plaza District, Midtown's most expensive submarket, declined a mere $0.61 to $67.20 per SF.

According to Insignia/ESG's May 2003 "i on the market" report for Downtown:

* Downtown's solid leasing performance in April brought year-to-date activity to 1.61 million SF. Still, that's 35% less than the 2.48 million SF leased in the same period in 2002. Net absorption for the year to date turned positive at 440,000 SF, thanks to last month's strong gain in net occupancy. Last year at this time, Downtown recorded 2.17 million SF of negative net absorption. The consequent drop in availability brought Downtown's rate to 13.90/a, below April 2002's rate of 14.8%. But the Downtown market is still plagued with inconsistency. Nearly all leasing and absorption activity in April occurred in the behemoth Financial District, with just 50,000 SF leased and 10,000 SF of negative net absorption in City Hall and zero leasing or absorption in the World Financial Center submarket.

According to Insignia/ESG's May 2003 "i on the market" report for Midtown South:

* With 1.47 million SF leased to date in 2003, Midtown South is 13% behind last year's pace through April. The. month's largest transaction was Community Preservation Corporation's 35,000-SF sublease from Bank of New York at 63 Madison Ave. Despite lower leasing activity, negative net absorption of 310,000 SF so far in 2003 is a 67% improvement over the negative 950,000 SF recorded in January through April 2002. Chelsea has made the most noticeable turnaround in this regard, with 210,000 SF of positive net absorption to date in 2003, compared with negative 330,000 SF last year at this time. In Park Avenue South/ Madison Square, 100,000 SF of positive net absorption in 2003 contrasts favorably with negative 220,000 SF in the same period in 2002. This submarket also posted the largest drop in availability last month, declining 0.7 points to 11.4%. Average asking rents in Midtown South decreased overall, despite minor bumps in pricing in Penn Plaza and Chelsea.