NEW YORK CITY-Following a flurry of significant deals in the spring and early summer, Lower Manhattan has become the leading submarket in the city year-to-date, CB Richard Ellis officials conceded at a press briefing at 7 World Trade Center Monday morning. At the halfway point of 2011, CBRE observed that large New York institutions and beginning to take large, long-term leases once again, driven by an appetite for new construction and state-of-the-art services.
“There have been some tremendously large transactions occur in the first half of this year, but the fact of the matter is, by all measures that we can observe, we are in for a very strong velocity here in 2011,” said Matthew Van Buren, executive managing director of CBRE’s New York office, sharing the firm’s second quarter MarketView data. “It may actually approach its highest levels or even exceed them for the last 10 years.”
In Manhattan overall, leasing activity has totaled 15.68 million square feet year-to-date, compared to 11.68 million square feet in Q2 2010. And in Downtown alone, approximately 3.23 million square feet has been leased year-to-date, compared to 1.43 million square feet in Q2 2010. This 1.8-million-square-foot jump, according to CBRE, has been defined by major relocations and desire for post-2000 office space. For example, Conde Nast Publications’ one-million-square-foot lease at One World Trade Center drove the highest single month of leasing activity here since September 2006.
But even without the Conde deal, Downtown’s leasing activity charged ahead of the five-year monthly average of 360,000 square feet, CBRE said. Other inventory coming off the market in June 2011 was the 540,000 square-foot 40 Rector Street, which will be converted to office condominiums; and the landmarked 510,000-square-foot 70 Pine Street, which will be converted into residential and hotel space.
As a result of these withdrawals, availability rates have also come down another point from 12.8% in Q1 to 11.3% in Q2, which is seen as a game-changer for the neighborhood. “This is not your grandfather’s Downtown,” said Sheldon L. Cohen, senior managing director of brokerage services for CBRE. “This probably isn’t even your father’s Downtown. What is doing on down here is quite remarkable both visually and empirically.”
The withdrawals at 40 Rector St. and 70 Pine St. also drove this month’s positive absorption at 1.23 million square feet, but the lease at One World Trade Center did not affect the quarter’s absorption statistic, as that space does not yet fall within 12 months of tenant possession, CBRE data shows.
And with the $120 million sale of 375 Pearl St. and more deals in the pipeline, Cohen said 2011 is “the time where Downtown is really evolving” and “coming into its own” as a 24/7 live/work neighborhood post-crisis. “Historically, it was market whose value proposition was price. If you wanted to be in Manhattan, you looked Downtown and the average asking rents were generally lower than in Midtown,” Cohen said, but he noted that prices in Lower Manhattan are slowing creeping up. “Tenants who are looking in Midtown are looking Downtown, and actually moving Downtown,” he added, though Midtown is showing strong leasing activity as well, with 2.42 million square feet in June 2011. One of Midtown’s biggest deals was Nomura Holding America, Inc.’s 900,385-square-foot move from the World Financial Center to 825 Eighth Avenue.
But with 60,000 below Chambers Street, Bradley P. Gerla, EVP of brokerage services of CBRE’s New York office, said Downtown is where young professionals and families are relocating to live, work and play. In addition to having the city’s top public schools--like Stuyvesant High School and PS 234--new colleges and universities are also looking Downtown for space, though he could not disclose which schools.
In terms of diversity, Gerla said leasing in the financial services sector has decreased 9% over the last five years as new industries like media and technology are beginning to create a presence. In addition to Conde, American Media Inc., the New York Daily News and The Knot have all relocated their offices to Lower Manhattan. “We are still dominated by financial services, but that has gone down while other sectors have gone up.”
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