Bruce Brodoff Communications
Bruce Brodoff Communications
Lower Manhattan Office Market Posts Heaviest Leasing Activity in 8 Years
October 16, 2006

3rd Quarter 2006 Leasing Volume Downtown Greatest Since 3rd Quarter 1998; Vacancy Rate, at 9.1%, Reaches Lowest Point in 5 Years

The Alliance for Downtown New York Inc. announced that tenants signed leases totaling 2.7 million square feet of Lower Manhattan office space in the third quarter of 2006, according to Cushman & Wakefield Inc. This was the largest single quarter of leasing activity since 1998, with the boost coming from businesses relocating Downtown and from companies pulling office space off the market that they had previously planned to sublease to others.

The heavy leasing activity fueled a dramatic decline in Lower Manhattan's office vacancy rate, which has reached the lowest point seen since the third quarter of 2001. The Downtown overall office vacancy rate fell to 9.1 percent in the third quarter of 2006 from 11. 2 percent in the second quarter of 2006. The increased demand helped push up average asking rents up to $36.18 per square foot in the third quarter of 2006 from $35.18 per square foot in the second quarter of 2006.

The Lower Manhattan Class A office vacancy rate fell to 8 percent in the third quarter of 2006 from 11.9 percent in the second quarter of 2006. Class A average asking rents increased to $41.76 per square foot in the third quarter of 2006 from $40.23 per square foot in the second quarter of 2006.

Along with major lease signings, a large number of smaller leases helped drive the net absorption rate to 3,021,362 square feet since the beginning of 2006, according to CB Richard Ellis. The absorption rate for the first three quarters of 2005 was negative 140,000 sf, while the overall absorption rate in 2005 was 500,000 sf.

"The substantial decline in vacancy rates Downtown marks a significant turning point from recovery to full-blown economic expansion, said Eric Deutsch, president of the Downtown Alliance. "Lower Manhattan has undergone a remarkable resurgence in the past five years, as evidenced by the now-single digit office vacancy rate, the influx of luxury retailers and the growing residential and tourist populations. The finalization of the plans for the World Trade Center site, which calls for millions of square feet of Class A office and retail space, has served as an important catalyst for the improving market conditions and will help ensure Downtown's place as perhaps the most modern, competitive and effective business district in the world."

Companies of all sizes have discovered the benefits of locating in Lower Manhattan. Area office buildings offer rents that are a considerable value compared to similar space in Midtown New York and other international business districts. Downtown leases may be eligible for valuable financial incentives, including exemptions and reductions in energy expenses, and commercial and sales taxes. In addition, Lower Manhattan boasts unparalleled access to public transportation; inviting parks and spectacular open spaces; and a bustling retail, restaurant and cultural scene.

These are some of the many reasons that Lower Manhattan continues to attract new companies to the area. In fact, nearly 2 million square feet in leases have been signed by more than 100 businesses moving Downtown from Midtown, Midtown South and other locations around the New York metropolitan area since the beginning of 2005.

Harris Beach P.L.L.C., one of the country's top 250 law firms, consummated a deal that served as a strong validation of Downtown's attractiveness and value as a business district. The law firm, a former tenant in Tower 2 of the World Trade Center, announced it is moving back to Lower Manhattan from its current offices in midtown Manhattan. Harris Beach leased 46,171 at the Class A 100 Wall Street and will occupy its new offices in mid-2007.

"This is a poignant moment for our firm," said James A. Spitz, Jr., CEO of Harris Beach. "Next year we will return to a Downtown that is quite different from the one we knew five years ago. There are exciting times ahead for Lower Manhattan, and we are proud to be a part of its new beginning."

Other companies that committed to relocating to Lower Manhattan in the third quarter of 2006 include AON, which subleased nearly 222,000 square feet at 199 Water St.; Royal Alliance Associates, which took more than 82,000 square feet at 1 World Financial Center; Darby & Darby, which signed for nearly 82,000 square feet at 7 World Trade Center. In addition, Mansueto Ventures LLC, the publisher of Inc. and Fast Company, leased 40,000 square feet at 7 World Trade, moving 150 jobs from Midtown to Lower Manhattan.

In addition to these new leases, a number of Downtown firms are expanding their offices in Lower Manhattan. These firms include Moody's, which signed a 20-year lease for 15 floors at the 52-story 7 World Trade Center; Willis Group Holdings Ltd., the world's third-largest insurance brokerage, which inked a deal for 204,575 square feet at 1 World Financial Center; Morgan Stanley, which leased an additional 64,779 square feet at 1 New York Plaza; AIG, which took an additional 79,322 square feet at 40 Wall St.; The American Stock Exchange, which signed for an additional 26,000 square feet at 40 Wall St; and the city of New York Department of Transportation, which consolidated three Downtown locations into 429,000 square feet at 55 Water St.

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