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Report: Midtown, Midtown South showing signs of life.

Although office leasing activity throughout Manhattan was sluggish in February, there were a number of encouraging signs in Midtown and Midtown South. Results in the Downtown market, however, were not so heartening. Availability remained level in Midtown and, for the third consecutive month, in Midtown South, but rose by almost half a percentage point in Downtown for the second straight month. In the current economy, many tenants are electing to remain in place or renew leases early when practical, and the five largest leases last month were all renewals.

Large, bellwether transactions remained absent from the market, leading to declines in activity in all three Manhattan markets. Leasing activity in Midtown, at 756,000 SF, lagged January's activity by 13%. In Downtown, leasing volume slipped to its lowest level in almost two years, with just 195,000 SF reported for the month. Although Midtown South's 337,000 SF of leasing activity was 46% below January's level, it was more typical of the activity level seen in this market over the past two years. Out of 206 blocks leased in Manhattan in February, only two exceeded 25,000 SF -- the largest being 30,000 SF -- and 166 were smaller than 10,000 SF. The largest new lease was 30,000 SF by UnitedHealth Group at 1114 Avenue of the Americas. The largest renewal was by the law firm of Sonnenschein, Nath & Rosenthal, which will remain in the 192,000 SF it occupies and expand into an additional 16,000 SF at 1221 Avenue of the Americas in Midtown.

Sublease space, which has declined over the past few months, fell off by 519,000 SF throughout Manhattan in February. Meanwhile, direct space increased by 804,000 SF. A good deal of the increase in direct space is the result of being returned to landlords through either term expirations or space recapture. The overall increase in available space resulted in 285,000 SF of negative net absorption, with most of it (299,000 SF) in Downtown. Midtown, on the other hand, registered positive net absorption of 40,000 SF in February.

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

* The availability rate in February remained unchanged in Midtown at 11.9%, and in Midtown South it stood at 13.2% for the third consecutive month. Downtown's availability rate, however increased from 14.8% in January to 15.2% in February.

* Despite the net increase in available space, asking rents were fairly stable in February, decreasing by $0.54 in Midtown to $52.90 per SF, by $0.10 in Downtown to $34.64 per SF and by $0.52 in Midtown South to $32.31 per SF. Concessions continued to increase.

* Large contiguous blocks remain plentiful in Midtown and Downtown. Nine blocks larger than 250,000 SF are on the market in Midtown and six are available in Downtown, while none of that size are available in Midtown South. Throughout Manhattan, 51 contiguous blocks between 100,000 and 250,000 SF were available at the end of February.

According to Insignia/ESG's March 2003 "i on the market" report for Midtown: February's 756,000 SF of leasing lagged January's activity by 13%, and 1.62 million SF leased in the first two months of this year was 17% less than the same period in 2002. The Grand Central, Park Avenue and Sixth Avenue/Rockefeller Center submarkets collectively accounted for more than three-quarters of Midtown's February activity. February's 40,000 SF of positive net absorption was a turnaround from January's negative 2.17 million, which resulted from the addition to inventory of three new developments slated for completion later this year -- 300 Madison Ave., Times Square Tower and 60 Columbus Circle.

According to Insignia/ESG's March 2003 "i on the market" report for Downtown: February's 195,000 SF of leasing was Downtown's lowest total since March 2001, when 153,000 SF was leased. A mere 31 blocks were leased Downtown in February, the largest of which was the City of New York's sublease of 22,000 SF at 40 Rector St. Significant to the Downtown market was NASDAQ's decision to withdraw 83,000 SF at 1 Liberty Plaza and keep it for its own use. Availability in the World Financial Center, already abnormally high at 26.6% in January, increased to 27.2% in February -- by far the highest availability rate in Manhattan. Sublease space, represented 35% of all Downtown availability in February, down from this market's 54% high-water mark in April 2002.

According to Insignia/ESG's March 2003 "i on the market" report for Midtown South: Midtown South's leasing activity of 337,000 SF in February was 46% below January's 623,000 SF. The most active submarket was Park Avenue South/Madison Square, with 172,000 SF of activity. For the second straight month, Midtown South had very modest negative net absorption: 26,000 SF in February following just 5,000 SF in January -- in sharp contrast to negative 744,000 SF for the first two months of 2002.

The low negative absorption is a sign that the Midtown South market is stabilizing following a 191% increase in availability since the end of 2000. Although sublease space shrank by 79,000 SF for the month, it was offset by an increase of 104,000 SF in available direct space. Union Square's availability, which decreased from 4.2% to 3.9% during the month, is the lowest among all of Manhattan's submarkets.
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Title Annotation:Leasing
Publication:Real Estate Weekly
Geographic Code:1U2NY
Date:Mar 26, 2003
Previous Article:Leases.
Next Article:City picks Dermot Company to develop West Side parcels.

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