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Midtown South office market leads comeback.

The Midtown South market, written off just a year ago, has made a strong comeback, with the emergence of sharp reductions overall in available space and strong leasing in the area's five market segments.

So reports Stephen B. Siegel, president of the Edward S. Gordon Company, Inc. (ESG), in the firm's monthly analysis of the Manhattan office market.

Underlying these Midtown South gains is a robust leasing velocity of 1.2 million square feet in the first four months of 1994. Putting this into perspective, Siegel noted that leasing velocity totaled 1.8 million square feet in all of 1993, and just 1.5 million square feet in 1992.

"The resurgence that began last August in Midtown South has continued in 1994," Siegel said. "It has been driven by transactions of more than 100,000 square feet. These larger office leases accounted for 51 percent of the total Midtown South leasing activity since the beginning of the year through April."

The key Midtown South office leasing deal in April was the Gap's decision to relocate its New York offices to 620 Avenue of the Americas, the ESG president said. It is one of the largest relocations in recent years from Midtown to Midtown South, he observed.

The available supply of office space in Midtown South has been reduced 22 percent to 5.2 million square feet during the past eight months - August through April - according to the ESG report. This year, some 960,000 square feet have been removed from this market.

Siegel also pointed to significant leasing activity in Midtown, where several market segments reported gains and where the availability rate continued to shrink. In April, for the third month in a row, Midtown leasing velocity topped the one million square foot mark. Lease transactions totaled 1.2 million square feet, up 14 percent compared to a year ago.

Strong gains were recorded, in particular, in the Park, Fifth/Madison and West Side segments. As well, the Sixth/Rockefeller segment continues to tighten. Nearly 800,000 square feet of positive absorption has occurred in this segment since the beginning of 1994, driving the availability rate down to 10.7 percent.

For Midtown as a whole, the month's activity exceeded the growth of available supply by a comfortable margin, and, as a result, year-to-date absorption was pushed into positive territory - 240,000 square feet. Currently, the market's availability rate stands at 15 percent, and this rate has been declining gradually for two years after peaking in April 1992 at 18.2 percent.

A major block of available space was removed from the Midtown market when Chancellor Capital leased 100,000 square feet at 1166 Avenue of the Americas in a relocation from Citicorp Center. In addition, the expected closing of Morgan-Stanley's purchase of 750 Seventh Avenue will remove over 700,000 square feet from the market, pointing toward a continued decline in availabilities.

In the Downtown area, the Goldman Sachs lease for over 400,000 square feet at One New York Plaza was the big news for April. This transaction is superlative on several counts, Raymond T. O'Keefe, ESG's Downtown office executive director, pointed out: It is the area's largest transaction of 1994, and the largest since Prudential Securities took one million square feet at One New York Plaza a year ago.

"Moreover, the Goldman Sachs lease, which represented a major expansion by the financial services company, contributed significantly to positive office absorption in April," O'Keefe said. "Overall, some 250,000 square feet were removed from the available supply Downtown last month," he continued. "This was the largest monthly reduction since last August."

However, despite the strong month, the Downtown availability rate has increased from 23.1 to 23.3 percent since the beginning of the year. In this time, the return to the market of almost 1.8 million square feet offset total leasing activity of 1.6 million square feet.

Reflecting the oversupply of available space Downtown, the current average asking rent slipped 3.7 percent to $26.91 a square foot.
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Title Annotation:Edward S. Gordon Co. report on Manhattan real estate market
Publication:Real Estate Weekly
Date:Jun 15, 1994
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