By Carter B. Horsley
New York's office market had a very strong year in 1998 with soaring rents and strong leasing activity reducing vacancies to lowest levels in recent years.
In Midtown, only 8.1 percent of the 194.5-million-square-foot inventory in 361 buildings was available at the end of the year, marking the first time in the 1990's that the availability rate "fell below the supply/demand equilibrium mark," according to a new report by Insignia/ESG, Inc. (In February, 1999, the same company readjusted these figures to indicate a 7.7 percent vacancy rate, the lowest in the 1990's, for 206.3-million-square-foot inventory in Midtown.)
The leasing activity for the year in midtown was up 10 percent over 1997 to 17.8 million, although December activity was only half the rate of the previous year and the net absorption for the entire year of almost 2 million square feet "was well off the record-breaking 8.2 million square feet recorded in 1997," the report continued.
Interestingly, the lowest vacancy rates were not on Fifth, Madison or Park Avenues. The report indicated that the Sixth Avenue-Rockefeller Center area had an availability rate of only 4.6 percent, followed by the 5.8 percent on the West Side, 5.9 percent on Park Avenue, 7.6 percent on the East Side, 7.7 percent in the Pennsylvania Station/Garment Center area and 8.5 percent on Fifth and Madison Avenues. Asking rents in the Sixth Avenue-Rockefeller Center district actually were one cent more than on Park Avenue, according to the report.
Fifth and Madison Avenues did have the highest average rents in Midtown, $54.40 a square foot a year, the report said. One building in the Plaza District was is rumored to have been asking more than $90 a square foot for some of its office space recently.
Midtown asking rents climbed dramatically in 1998 by 22 percent to $43.66 a square foot a year, according to the Insignia/ESG study.
Although the Downtown office market experienced some difficulties because of continuing cutbacks in the financial services industry, it continued to tighten and witnessed 8.9 million square feet of leasing activity, second in this decade only to last year's record pace, the report continued.
The Downtown vacancy rate, the report found, declined by three percentage points to 12.4 percent with the Financial District showing the most activity with 3.2 million square feet of positive absorption, reflecting the major commitment by the Metropolitan Transportation Authority for 1.6-million square feet at 2 Broadway. Downtown's average asking rent rose 21 percent in 1998 to $31.75 a square foot a year with the World Trade Center/World Financial Center area having the highest asking rent of $39.06 a square foot. The City Hall/Insurance District had the lowest asking rent of $29.35 a square foot and this submarket experience a negative net absorption that raised its vacancy rate almost six percent points to 16.2 percent, the report said.
Midtown South's vacancy rate declined significantly by nearly two percentage points to 5.6 percent while its asking rents climbed 36 percent to $30.68 a square foot a year. Rent increases of this magnitude are quite remarkable in such a short period. Average asking rents in the NoHo/SoHo district climbed more than $13 over the course of 1998 to $35.20 a square foot a year, the report maintained, even though this district was the worst performer in Midtown South in leasing activity, registered a negative net absorption of 110,000 square feet.
The Park Avenue South/Madison Square district ended 1998 with a vacancy rate of only 2.1 percent and the Chelsea and Flatiron districts also saw "significant reductions," the report said.