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NYC Commercial Slowdown Leasing activity taps the brakes Credit crisis makes fi nancial companies pause in pursuit of large blocks

BY THE REAL DEAL STAFF large blocks of space,” said Mark Friedman, a per square foot in , which more Other brokers denied that any recent slug- arge offi ce tenants may have felt vice chairman at the commercial real estate and more hit three digits, fi rst for smaller gishness in leasing activity, including among like they were playing a game of fi rm GVA Williams. spaces and then even for larger spaces ear- the large offi ce-space users, has occurred, L musical chairs through the fi rst lier this year, may have induced hesitancy in asserting that many large deals are about to quarter of 2007: that if they didn’t grab Staying put companies that typically take larger spaces, be clinched imminently. a space when presented with one, they According to Colliers ABR’s data, besides creating a slowdown in leasing velocity. “There are still a lot of leases that I’m might be left empty-handed. there being fewer leases of 100,000 square “It was very rare to see large transactions working on, and that a lot of other people are That game has apparently concluded. feet or greater this year, more of them were done, forget about north of $100 a foot, but working on, that haven’t been announced, Large users of offi ce space are no longer lease renewals as opposed to relocations. In above $80 a foot, until very recently,” said but will be by the end of the year,” said Ken rushing headlong to lock in a good deal. 2006, lease renewals accounted for about 26 David Goldstein, an executive vice president Meyerson, a senior vice president at the According to data compiled by the com- percent of the leasing activity among larger at the commercial real estate fi rm Studley. commercial brokerage CB Richard Ellis. mercial brokerage Colliers ABR, while com- offi ce spaces, while in 2007, lease renewals “Over the last, let’s say, six to 12 months, there Still, most brokers agreed that the credit panies in City leased 42 spaces of accounted for almost 38 percent of the leas- have been a handful of larger deals that had crunch is causing companies in the securities 100,000 square feet or larger in 2006, this ing activity among larger spaces. triple digits in front of them, which was ex- industry to take a pause. While fi nancial ser- year, through last month, fi rms had leased “That’s due to a number of reasons, but ceedingly rare.” vices and insurance companies accounted for only 29 spaces of 100,000 square feet or fi rst and foremost is the high cost of con- Those steeper prices may have played a 19 of the leases of spaces 100,000 square feet larger, a drop of almost 31 percent. struction, which affects both the landlord role in discouraging leasing activity in the or larger in 2006, or more than 45 percent, Since the securities sector typically ac- and the tenant,” Friedman said. “A landlord’s commercial market, brokers said. the same type of companies signed on for only counts for about a third or more of the leases replacement costs for a tenant are so high, “I attribute the slowdown in leasing to the 11 of the large spaces leased in 2007, or about for larger blocks of space – 100,000 square he might be a little more amenable to mak- fi rst half of the year when there was a defi ned 38 percent, according to Colliers ABR data. feet and above – a crisis related to mortgage ing a deal to retain a tenant than he was six spike in rents and there was this stalemate Law fi rms, especially those supporting lending has sent the demand for larger offi ce months prior.” going on, with landlords and tenants staring fi nancial services companies, were once a spaces spiraling downward, brokers said. The number of large offi ce leases peaked each other down and saying, ‘Who’s going strong force among those companies taking “Certainly, the credit crunch caused a sea in the fi rst quarter of 2007, and then steadily to blink fi rst?’ ” said Matthew Astrachan, an large spaces, but this year their leasing activ- change of caution among those in the fi nan- declined, according to data from GVA Wil- executive vice president at the commercial ity has fallen off, according to some brokers. cial services industry that were taking these liams. Brokers said that astronomical rents brokerage Cushman & Wakefi eld. (But not all brokers agree. See the article “Lawyers make their case for offi ce space” in Big deals grow more scarce the November issue.) Media companies rule Leases 100,000 square feet and greater in 2007 Thus far, media companies have reigned as- New/ cendant. In 2006 only about 7 percent of the Tenant Address Square Feet Renewal large leases were closed by media compa- Davis Polk 450 650,000 Renewal nies, but in 2007 almost 21 percent were. Cravath Swaine & Moore 825 Eighth Avenue 617,000 Renewal “As far as large leases go, I think you’ve seen broadcast and media certainly very hot Lehman Brothers 1271 Avenue of the Americas 425,000 New this year,” said Robert Sammons, managing Viacom (MTV) 345 Hudson Street 394,000 New director of research at Colliers ABR. Grey Group 200 370,000 New Many media companies ended up tak- Omnicom 437 337,000 Renewal ing space in , primarily Simon & Schuster 1230 Avenue of the Americas 305,000 Renewal in the Hudson Square submarket, where CBS Broadcasting 555 West 286,000 Renewal landlords had been sitting on smaller spaces Goodwin Procter 620 Eighth Avenue 216,000 New that had been vacated by tenants with the Omnicom 195 184,000 New long-term goal of combining spaces to cre- Bank of Tokyo-Mitsubishi 1251 Avenue of the Americas 209,000 Renewal ate large chunks of premium offi ce space, AIG 277 167,000 New brokers said. Bessemer Group 630 Fifth Avenue 160,000 Renewal * Because of that maneuver, the number AOL 152,000 New of large blocks of offi ce space is now on the rise, said Joyce Geiger, executive manag- Alliance Bernstein 1345 Avenue of the Americas 151,000 Expansion ing director of consulting at the commercial Hachette Filipacchi 237 Park Avenue 140,000 New brokerage GVA Williams. Warburg Pincus 135,000 New “The availability of large blocks is on the Google 75 Ninth Avenue 130,000 New increase now,” she said, pointing out that in Fragomen Del Rey Bern 7 Hanover Square 120,000 New the fourth quarter of 2006, there were about News Corporation 1211 Avenue of the Americas 119,000 New 14 blocks of space over 100,000 square feet, R. R. Donnelly 75 Park Place 116,000 Renewal but by the third quarter of 2007, there were 115,000 New about 22 blocks. Rabobank 110,000 Renewal Much of the growth in large spaces “has Lord & Taylor 601 West 26th Street 109,000 New been in Midtown South, where, in a response iStar Financial 1095 Avenue of the Americas 107,000 New to a shortage of larger spaces, the landlords 237 Park Avenue 107,000 New have been hoarding space to assemble large Macy’s 1440 Broadway 105,000 Renewal/Expand blocks so they can put them back on the mar- ket to attract the large users,” she said. Seligman 100 Park Avenue 100,000 Renewal Yet even given the availability of large Ann Taylor 1372 Broadway 100,000 Renewal blocks of space, many companies may be Source: Colliers ABR; data is year-to-date through Nov. 15. * New lease begins 2010. Continued on page 124

116 December 2007 www.TheRealDeal.com www.TheRealDeal.com August 2006 00