NY Office Market Continues to Show Signs of Stability—Grubb & Ellis Second Quarter Trends

Second Quarter 2010 Office Market Highlights:

• Vacancy experienced its first decline since 2008

• Available supply is at a 15-month low

• Mid-year leasing activity is up 20 percent year-over-year

• Demand for large blocks of space increased—five deals greater than 250,000 square feet were signed

• Overall direct rents dropped in Manhattan—Midtown Class A asking rents rose for the first time in nine quarters

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Weak Downtown Market Lingers— Grubb & Ellis New York June Market Trends

Now that it's July I guess I should get around to posting the June NYC office market trends, so here it goes:

• Downtown availability reached a five-year high at 16.5 percent

• Vacancy soared due to Goldman Sachs’ relocation to new headquarters

• Large blocks of available space will likely impede Downtown’s growth

• Asking rents are stabilizing, concessions remain at market high

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Concessions Foster Midtown's Recovery—Grubb & Ellis Manhattan Market Trends—May 2010

May 2010 Office Market Highlights:

• Since the height of the market, tenant improvement allowances have increased 35%

• Expect Midtown landlords to cut back on concessions as the market improves

• Availability in Midtown dropped for the sixth consecutive month

• Midtown South and Downtown experienced setbacks in April, as availabilities rose

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Weekly Market Insight • Monthly Payroll Job Change, Seasonally Adjusted • 5/10/10

Employers added a robust 290,000 net new payroll jobs in April while February and March numbers were revised higher by a combined 121,000, bringing year-to-date job growth to 573,000. Private sector hiring accounted for 231,000 of the jobs created in April, led by professional and business services with 80,000, leisure and hospitality with 45,000 and manufacturing with 44,000. The unemployment rate increased from 9.7 to 9.9 percent as people who had given up looking for work re-started their searches in response to more opportunities. As a result, the labor force expanded by 805,000, raising the labor force participation rate, which had dropped to a low of 64.6 percent in December, to 65.2 percent in April. Unemployment remains distressingly high, but April’s uptick, caused by more people actively seeking work, suggests a more hopeful outlook. Job growth is the last piece of the economic puzzle necessary to put the recovery on a sustainable course. For commercial real estate, the April employment data combined with the emptying construction pipeline signals that leasing market fundamentals are close to bottoming out.

Robert Bach, Senior Vice President, Chief Economist, has 30 years of professional experience in real estate market research, consulting and city planning. His commentary on the real estate markets is provided here on a weekly basis.

Midtown Strengthens, Downtown Softens Further — Grubb & Ellis NY Market Trends Q1 2010

First Quarter 2010 Office Market Highlights:

• Tenant demand driving availability down in Midtown and Midtown South

• Leasing activity up 14% compared to first quarter 2008

• Downtown fundamentals softening with increase in large block inventory

• Average transaction size continues to drop, averaging 10,090 square feet -- 43% lower than previous 13 years

• Asking rents stabilized -- should remain flat through 2010

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Good News Friday from Grubb & Ellis Chief Economist Bob Bach

I haven't posted Bob Bach's Good News Friday in awhile, but this is a pretty good one, so I thought I'd pass it on:

Grand Slam of Good News

Maybe it’s just that spring has arrived along with its sense of rebirth and optimism (especially for Cubs fans, whether it’s warranted or not), but it really seems like the news keeps getting better.

• Last Friday the Bureau of Labor Statistics reported that payroll employment rose by 162,000 in March including 123,000 in the private sector, the best performance in three years. That number comes from the establishment survey. Less noticed was that the household survey, from which the unemployment rate is derived, reported that 264,000 more people were employed in March than in February following an increase of 308,000 the previous month. Coming out of a recession, the household survey is believed to be the more reliable indicator because it picks up hiring by start-up companies.

• Thomson Reuters reported yesterday that same-store retail sales rose 9.1 percent in March, the strongest monthly gain since 2000 when the company began tracking the data. The gains were spread across all merchandise categories. March sales benefited from warm weather and because Easter occurred a week earlier this year, pushing holiday-related shopping into March. Nonetheless, this performance handily beat expectations for a 6.3 percent increase and seems to signal that consumers are getting back in the game.

• The Institute for Supply Management’s non-manufacturing index, which tracks the service sector, increased to 55.4 in March. Like the more widely publicized manufacturing index, values above 50 indicate expansion. The manufacturing index has been above 50 for eight consecutive months as business capital spending began to grow again, but the non-manufacturing index has been slower to rebound. The recent strength suggests the recovery is broadening out across the economy.

• If you didn’t catch it last night, Jim Cramer gave a ringing endorsement for commercial real estate on his CNBC show, “Mad Money.” Click here to read the summary and view the video.

Lastly, if you can’t quite believe that all this good news is for real, take a look at this article in today’s New York Times on why people remain skeptical about the recovery. Economic weak spots persist, but psychological and political factors are at work, too.

Blueprint for Sublease Success

Recently an excellent article by my colleague Gayle Meredith was featured in the CoreNet industry magazine - Insite. The article offers practical tips for tenants considering subleasing their space.

Here's the intro to the article. For the full article with great tips on Sublease strategy, click here.

As of September 15, sublease space in Manhattan accounted for 30 percent of the available supply, or 15.8 million SF. That space is slowly being absorbed. Recent leasing activity has sublease space down from a high of 16.2 million SF in June. However, of the 12.2 million SF leased to date in 2009, sublease transactions accounted for only 15 percent of the activity. The forecast for 2010 includes additional sublease space hitting the market as companies bite the bullet and officially add availabilities to the current supply.

Next year will bring increased competition for available sublease and direct space alike, as well as increased tenant interest in relocation as the pace of lease expirations accelerates. For companies with excess inventory, the time to sit on the sidelines has passed.

The key to a successful sublease program is developing a practical, well-informed marketing plan that meets the company’s strategic objectives with realistic pricing, a stream-lined decision-making process, and precise prospect targeting.