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April 10, 2012 at 13:52 PM EDT
Tenants add more space to market than is leased
More commercial space was put on the market in Manhattan than was leased up in the first quarter of the year, although brokers were quick to point out both that the amount was minimal and that they do not expect that the so-called negative absorption to repeat itself this year. Overall, three million more square feet of space was put up for rent than was absorbed as more tenants put their excess space on the market for sublease, according a report issued Tuesday by CBRE Group Inc. In the first quarter of last year, the negative absorption rate—the difference between what is put on the market and what is leased—was a mere 100,000 square feet. In midtown alone in the most recent quarter, the negative absorption totaled 2.1 million square feet. In midtown south the rate was 800,000 square feet, and downtown it came to 100,000 square feet. It was the first time since the second quarter of 2009 that all three markets had negative absorption. “We've seen a little more (sublease space) this quarter. It is nothing significant,” said Robert Alexander, CBRE's chairman of the New York Tri-State Region. Instead, he noted that the sublease space available in midtown is less than 1% of the overall market there. Nonetheless, in recent weeks, drugmaker Pfizer Inc. and some banks have put sizeable amounts of space back on the sublease market . In the largest of those, Pfizer tapped Cushman & Wakefield Inc. to sublet three floors at 150 E. 42nd St., with a total of roughly 274,000 square feet, a company spokeswoman confirmed. Meanwhile, JPMorgan Chase & Co. is subletting 50,000 square feet at 277 Park Ave. Those two blocks of space come on top of a total of about 172,000 square feet being shed by Citigroup Inc. and Société Générale . Meanwhile, Nomura has decided against leasing 200,000 square feet of the 900,000 it had agreed to rent at Worldwide Plaza on the West Side last year. The sublease space has hit the market at a time when leasing velocity has slowed. During the first quarter, such activity fell 25% to 4.65 million square feet. Still, overall rents in Manhattan rose an average of 9% to $54.53 a square foot, a level that still has them below pre-recession peaks. Part of that rise owes to tenants owes to tenants taking advantage of the softer market to secure better space in terms of location, building amenities and condition. “There is a flight to quality,” said Michael Geoghegan, a vice chairman at CBRE. The report found that midtown tenants will pay a 65% premium to be in the top 20% of buildings—which is about 45 properties in the neighborhood. In 2008, there was only a 50% premium, but back then overall rents were higher.
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