Market Holds its Own Despite Softening Rumors

[IMGCAP(1)]NEW YORK CITY-The local office market continues to feel the impact of the turmoil affecting the global financial markets , and although brokerage firms see overall vacancy rates increase, the waters aren’t as gloomy as they could be. Richard Persichetti, manager of client services at Grubb & Ellis, tells GlobeSt.com that direct average asking rents have declined, however he notes that “despite average asking rents beginning to trend downward, prime spaces continue to command high prices in select areas of Manhattan when compared to their respective submarket.”

As the industry knows, all brokerage firms gather their data differently, so statistics and findings will vary. CB Richard Ellis’ Q2 2008 report shows office rents rising slightly from May to June. Overall Manhattan asking rents rose from $71.35 per sf in June from $71.25 in May, as availability rose to 9% from 8.9%, and absorption improved to negative 0.25 million sf from negative 0.37 million sf. June was a strong month for leasing activity, especially Downtown, with large leases such as American International Group‘s 803,000-sf lease at 180 Maiden Ln, among others.

According to Grubb & Ellis, the office market reached its peak in the real estate cycle during the first quarter, as available supply continued to increase and demand for space remained sluggish. In the second quarter, the overall vacancy rate climbed 70 basis points from the first quarter to 5.6%, the largest one-quarter vacancy increase since the fourth quarter of 2001. The firm says that negotiations are still in the landlords’ favor, but tenants are beginning to gain some leverage when compared with the last three years. “Concessions in Midtown have already increased compared to this time last year, with an average of an additional $3 per sf in work being offered and one to two additional free months of rent included in the lease,” the report says.