The report's summary of the past year's office market provides the bad news first, pointing out that the sector "showed the stress of the economy" throughout the year. If there were 6% more leases signed on a year-over-basis, they tended to be smaller, meaning that the year-end tally of 2.89 million square feet was off 7% from the year prior and 58% from the peak in 2006. However, the Downtown Alliance's report states, "the year ended on a positive note as vacancy declined for the first time in five quarters and the Downtown market showed an uptick in leasing activity."
Eleven Lower Manhattan leases of 100,000 square feet were signed during '09, topped by the 265,082-square-foot Gap Inc. deal at 40 Worth St. The Downtown Alliance report notes that eight of the 11 were in the professional services, FIRE and government sectors that constitute the largest employment bases in the submarket.
In its monthly office report for February, issued Thursday, Jones Lang LaSalle observes that Downtown's class A office vacancy held at 8.8% for the second consecutive month, "as there appears to be a temporary pause in space being returned to the market." While noting that the Downtown office vacancy rate "appears to be one of the healthiest in the nation," JLL warns that "it is likely that rates will begin to rise during the second half of the year."
Already, JLL says, there are several blocks of quality space on the market at properties that include 125 Broad St., 7 World Trade Center and 77 Water St. JLL says that asking rents continued ebbing across all property types in February, "ahead of an anticipated rise in vacancy rates."
Not surprisingly, the FIRE sector led the way in employment declines during '09, sliding 9% during the first half of the year, according to the Downtown Alliance report. Lower Manhattan's total employment declined 3.5% to 303,760 between the end of '08 and the second quarter of '09, the most recent period for which data are available.
However, the area's residential population of 55,000 represents a 2% gain over '08 levels and is twice what it was in 2001. The Downtown Alliance says it's projected to reach 59,300 by the end of next year. While ground-up multifamily product in '09 suffered from a lack of financing, "new construction will predominate in the development pipeline beginning in 2010." The Moinian Group's W Hotel & Residences and Forest City Ratner's Beekman Tower are both scheduled to go on line this year.
Arguably the liveliest sector Downtown this past year was retail. A total of 91 new stores and restaurants opened their doors, double the number in '08. Although 75 retailers went out of business during '09, there was a net gain of 16 over the prior year. The report also notes that the submarket's retailers are "well supported by foot traffic."
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
