Pushing forward in New York City: World events continue to affect the Manhattan office market

While America focuses on the current Presidential race now winding down in its final weeks and the uproar overseas in the Middle East and Europe; the repercussions from the geopolitical theater continue to affect the Manhattan office market. If you are a wealthy investor in Europe your domestic currency is at great risk. In the past five years the Euro has gone from a triumphant $1.60 USD to the low $1.20's USD in a slow, long term slide with plenty of ups and downs, and it will likely go lower from here. The value of the Euro has been adversely affected by nations in difficult financial circumstances. This has led to a global "flight to safety." Preservation of capital is the new mantra of the rich. Overseas investors are searching for hard assets in Manhattan, whether it is a prize apartment or an office building, product is product. While we have all read about some of the unbelievable prices being paid for prize apartments, very few office buildings have come to the market for sale resulting in a dramatic upswing in prices. Two recent purchases in the market, 350 Madison Ave. at 45th St. at $888 per s/f and then 285 Madison Ave., at 40th St., a building that will be vacant by next year, at $345 per s/f exemplifies that there is little product and huge demand. The first of two large office buildings that have just come to the market is 825 Eighth Ave., known as Worldwide Plaza, located at 50th St. between Eighth and Ninth Aves., a 2 million s/f building, the second building is 11 Madison Ave. at 25th St., a 2.2 million s/f building. With so little inventory in the marketplace, it will be interesting to see the prices that are achieved. It is the third quarter of 2012. Congress has gone home for the election season, not to return until after November 6th. On January 1st, 2013, a significant capital gains tax increase will be the law of the land. With this in mind, the fourth quarter may see a dramatic increase in the sale of Manhattan office buildings, owners who prefer to take advantage of a strong market with the lower capital gains rate currently in place. Let's all hope that Congress returns after November 6th and agrees to extend the capital gains rate as current into 2013 and beyond. The Manhattan office leasing market has also been affected by turmoil overseas and American and International firms in Manhattan have experienced the backlash. Though the midtown market has customarily been the destination for many blue chip professions including the pharmaceutical industry, and the accounting, law and finance industries, the overseas tumult has tested these firms like never before. The midtown market has been affected but continues to withstand, new, large blocks of office space coming to the sublease market as the vacancy rate remains in the 11% range with class A building rents approaching $70 per s/f on average. Murray Hill Properties owns leases and manages 3.3 million s/f through our funds and on behalf of third party ownership, leases and manages another 3.2 million s/f. MHP owns 1180 Avenue of the Americas at 46th St. where the agency team just leased a 23,165 rentable s/f space, the last large space in the building bringing our occupancy rate across our entire portfolio to about 95%. The Midtown South office market continues to benefit from the technology boom and is the strongest market in Manhattan. A recent survey of available space in the 2,000 to 10,000 s/f range located only on Park Ave. South, between 16th and 32nd Sts., 16 blocks, yields just 24 spaces available from ownership. On behalf of third party ownership, MHP leases and manages 461 Park Ave. South, now 100% leased. A similar survey of available space located only on Fifth Ave., between 14th and 23rd Sts. in the 2,000 to 10,000 s/f range yields just 4 spaces available from ownership. At 155 Fifth Ave. located at 21st St., we are 100% leased and at 101 Fifth Ave. located at 17th St., we are 95% leased with just one 3,800 s/f unit available. It is easy to understand why the vacancy rate in Midtown South is hovering in the 8% range and rents are nearing $50 per s/f. Beyond 250 West 55th St., the industry specific Gem Tower on West 46th St. and 51 Astor Pl. in the Village, there is very little office development taking place in Midtown and Midtown South, a sure sign that the vacancy rates will continue to retreat. David Greene is the president of brokerage services at Murray Hill Properties LLC, New York, N.Y.