Downtown real estate shrugs off Sandy

Despite taking a massive hit from Superstorm Sandy, the downtown real estate market has held up remarkably well.

"There was a lot of concern, but despite Sandy we had a very strong fourth quarter," said Sheldon Cohen, a senior managing director of CBRE Group Inc., speaking at the real estate services firm's year-end market review press conference. He noted that leasing in the final three months of the year downtown totaled 1.2 million square feet, 9% more than was leased in the year-earlier quarter.

In fact, the largest deal of the entire year downtown was completed after the storm. That was a lease for 237,000 square feet signed by the New York State Department of Financial Services. There were also no major deals that were canceled because of the storm, according to CBRE, which reported that 94% of the office space in the market is now fully operational.

He noted that more than half of last year's leases were signed by companies outside the traditional financial and insurance sectors. That includes Nielsen Media Research, which took 115,000 square feet, in the fourth largest lease signed last year.

"This market is continuing to reinvent itself in terms of the type of tenants coming down," said Mr. Cohen.

That process will likely continue this year, during which 3 million square feet is expected to hit the market, much of it courtesy of 1 and 4 World Trade Center. All that new space will help to lower the average age of space on the market. This year, 58% of the space available for lease downtown was built after 1980, nearly three times midtown's 20%.

Elsewhere in Manhattan the picture was not as encouraging last year. Not only was the total square footage of commercial space leased 19.9% off the pace of 2011, at 22.3 million square feet, but an unusually large number of those deals were renewals of existing leases. Such deals typically pack less of an economic punch than relocations, which involve moving expenses, build outs of the space and other items.

Last year, renewals accounted for 35% of the total leasing volume, a 10-year high. Even more striking, the 10 largest deals of 2012 were all renewals.

"I cannot recall another year where we have not had one relocation in the top ten," said Peter Turchin, a CBRE executive vice president. "What was missing last year was the big relocation."

Even midtown south, Manhattan's hottest market, struggled a bit last year. There leasing volume fell 20%. Asking rent per square foot, however, still managed to climb to a record high of $55.14. That was $8.29 above the downtown average, and $12.66 below the year-end average for midtown.

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