Year-to-date negative absorption Downtown has already reached 1.8 million square feet, compared to 523,000 square feet at this time a year ago, EVP Bruce Surry said at a media briefing Wednesday morning. For example, AIG gave back a block of half a million square feet at 70 Pine St., its former headquarters building, and that is now counted in the totals. But Cohen said that predictions of Downtown's availability rate peaking at 21% assume that none of the space being vacated by major financial firms will be leased. A more accurate projection, Surry said, is a peak of 16% to 17%.
That negative absorption may turn out to be smaller than feared. For one thing, although Bank of America Merrill Lynch hasn't publicly disclosed its plans as yet, it now appears that the firm will have "some footprint" Downtown, Cohen said. Following Merrill's absorption by BofA in late 2008, the general belief was that all of its Downtown space—more than four million square feet among three locations—would go dark.
In fact, Cohen said one of the submarket's demand drivers will be large tenants. "There are about two million square feet of large space users in the market that are seriously considering Downtown," Cohen said. He declined to name all of them, but noted that one of them is rumored to be Deloitte.
Another factor will be spillover from Midtown, where top-tier asking rents can be as much as 30%. "Downtown is generally a receiver of tenants from Midtown," Cohen said. There's also the increasing diversity of Lower Manhattan's economy: 47% of its commercial tenants are outside the FIRE sectors.
Even so, CBRE's white paper and its MarketView for Manhattan as a whole charted some of the heavy weather rolling in across Lower Manhattan. With 260,000 square feet of office space leased there in March, volume is still well below the 60-month historical average of 375,000 square feet per month. By contrast, Midtown's March total of 1.2 million square feet was twice the tally for March '09. And Downtown's average asking rent of $38.81 will decline further when availabilities at 70 Pine are factored in.
Although Downtown's availability rate of 13.5% is the lowest of the three submarkets, it's climbing, and the surplus of space could potentially enlarge when the first of the World Trade Center Towers come on line. Yet Cohen predicted that the appetite for new office space in a market where 80% of the space is more than 25 years old would work in the WTC's favor.
Asked whether Silverstein Properties Inc. had a good chance of pre-leasing 500,000 square feet of its planned WTC Tower 3, thus meeting one of the conditions for financing assistance from the Port Authority of New York and New Jersey, Cohen responded, "If there's anybody Downtown I'd bet on, it's Larry Silverstein."
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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.
