NATION OFFICE MARKET
Manhattan’s office market started the year with little activity as the first quarter vacancy rate remained at 11.3%, no change from last quarter.
Overall asking rent decreases continued as rents depreciated 2.1% this quarter, down from an average of 2.7% per quarter during the past two years. Manhattan absorption was a positive 216,489 square feet for the quarter.
Although the overall vacancy rate remained flat, the availability rate increased 60 basis points to 14.9%. During the first quarter 2.1 million square feet of available space hit the market, despite large deal activity.
The Microsoft deal at 1290 Avenue of the Americas is an indication that “shadow space” exists and tenants in the market are seizing opportunities to secure space that has yet to be listed on the open market.
Midtown accounted for 56% of the available space that came to market as the Associated Press placed 235,381 square feet at 50 Rockefeller Plaza and Instinet placed 155,000 square feet at 3 Times Square in March.
Downtown, Bank of New York placed 320,670 square feet on the market at 100 Church St. in February.
Midtown saw an increase in vacancy to 9.5%, bringing the year-to-date absorption to negative 775,753. This change is due to large blocks of space that were vacated in March, most notably the 391,951 square feet left by Random House at 1540 Broadway.
Midtown South saw a decline in vacancy to 13.4%, down from 13.8% in March as Foote, Cone & Belding occupied 283,822 square feet at 100 West 33rd St., which accounted for the positive 257,717 square feet of absorption year-to-date.
New York lost 226,100 jobs in the past nine quarters, and with limited new job creation seen in the short term, the office market will continue to show weakening trends this year.
The city’s economy isn’t expected to grow until 2004.
The local economy could worsen before the end of the year as a budget plan released by the mayor calls for more job cuts.
Midtown vacancy was relatively stable last year, but has shown some early signs of softening, which are expected to continue in the second quarter.
Similar to last year, Midtown South started the year with a decrease in vacancy, but the market softened the following three quarters. It most likely will follow the same pattern this year as the big supply of space in Manhattan makes Midtown South less competitive.
The downtown market likely will remain flat as landlords try to retain tenants with competitive concessions to keep them from migrating north to Midtown.
OTHER MARKETS
Boston
Vacancy stabilized in the quarter, with near flat absorption, ending several consecutive quarters of growth in the vacancy rate.
Vacancy almost is certain to increase in the next four quarters as 4.5 million square feet of new space is finished. Rental rates are likely to continue to decline through the end of 2003 and generous tenant improvement packages and increasing free rent allowances are common for credit tenants.
Chicago
The economy has stalled Chicago office markets. Asking rates have stabilized somewhat, as has the sublease market, while vacancy rates increased minimally this quarter. Most observers think the market has finally bottomed and that brighter days will be ahead in 2004 (early 2005) as economic conditions and corporate earnings turn for the better. In the meantime, it’s definitely a tenant’s market due to the oversupply of available space, attractive rates and a substantial sublease market.
Houston
Although the office leasing market still shows weak demand, recent statistics indicate that the rate of deterioration has slowed in the past six months. Early office activity in 2003 will be torpid, characterized by tenant hesitation, stemming from the mixed signals given by the local, state and national economies. Beyond mid-year, though, growth and expansion is expected in Houston, particularly amongst small to mid-sized services firms.
Miami
The office market got off to a slow start in 2003. While leasing activity seems to have picked up from what it was in recent months, many of these are renewals or represent lateral movement within submarkets. Tenants are capitalizing on the slow market to negotiate better deals either in their existing buildings or in nearby competing buildings. The class A sector in the central business district remained its best performing at 12.1% vacancy, but this will change dramatically by year-end when more than 400,000 square feet of class A space comes on line.
New Jersey
While one-half of the office submarkets registered positive absorption, the remaining markets recorded negative quarterly absorption. The overall result was that the availability rate slipped one-half percentage point from year-end 2002 to about 22.4% in early 2003.
Oklahoma City
The city once again finds itself recording positive absorption and feeling optimistic about the year ahead. Fueled by local businesses that are gaining confidence and expanding into more space, the market has seen two consecutive quarters of positive absorption. Strong positive absorption brought on by continued expansions in the rest of the year will lead to an improved vacancy rate by the end of the year.
Tampa
Leasing activity was fairly active in the first quarter, as tenants took advantage of a market clearly in their favor. One emerging trend for large office space users is consolidation of multiple locations into a single location. These types of moves are popular in light of today’s cost-cutting climate.
Washington, D.C.
Fears that the war in Iraq would cause an economic slowdown have certainly proved untrue in the Washington, D.C. metropolitan area. On the contrary, increased defense spending has prompted expansions by both the federal government and the defense industry. This growth helped fuel over 1.2 million square feet of net absorption in the first quarter, half of which occurred in downtown Washington. With several large government agencies still shopping for space, it is a safe bet that there will be positive absorption this year, thanks to the federal government. Still, the news is not all good. Rental rates have declined across the board, but particularly in Northern Virginia.
