Here's the article from Therealdeal.net:
In the office market, mighty hunters
August 01, 2010 12:00PM
By Adam Pincus
Bank of America. Morgan Stanley. Condé Nast. These are the companies leading the pack when it comes to searching for large blocks of Manhattan office space.
Yet they have plenty of company.
In fact, real estate insiders say there are more large tenants on the hunt for Manhattan space -- and also signing deals -- this year than there were a year ago.
The reasons are manifold, brokers say. First off, the improved economy, while not necessarily firing on all cylinders, has provided tenants with just enough confidence to take advantage of the weakened market conditions.
Indeed, as of last month effective rents were down 38 percent from their July 2008 peak to an average of $42.65 per square foot, Cushman & Wakefield statistics showed. In addition, a wave of lease expirations looms on the horizon.
While there is no public record of which tenants are actively seeking space, The Real Deal asked sources at each of the major commercial firms -- all of which keep their own proprietary lists of tenants that are in the market -- and found that at least 16 tenants are eyeing space of 300,000 square feet or more. (Brokers cautioned, however, that it is impossible to produce a fully comprehensive list because some tenants are looking for space quietly and don't want their searches to be publicly known.) And most of the firms officially declined to comment, citing confidentiality agreements with tenants.
Still, not only are large tenants on the hunt for space, they also signed a higher percentage of deals in the second quarter than they did in the same period in 2009. This year, almost 15 percent of the total square footage leased from April to June in Midtown was for leases above 100,000 square feet, according to statistics from Cushman.
That's up from just under 7 percent of the Midtown deals last year.
A large number of the assignments identified by The Real Deal are held by brokers at Cushman. They represented seven of the tenants, for a total of as much as 3.5 million square feet, according to the survey. One of the assignments, for financial and accounting firm Deloitte, is being handled by vice chairmen Mitti Liebersohn and John Cefaly, who was a member of the team that represented the 99,000-square-foot lease for the Daily News in the Financial District, and Dale Schlather, an executive vice president who was on the team that represented Avon Products in its 246,500-square-foot lease in Midtown (note: clarification). Schlather is also on the team representing law firm Milbank, Tweed, Hadley & McCloy, which is in the market for 350,000 square feet of space.
Click image for larger versionAndrew Sachs, executive director at Cushman, credited a more collaborative management style with bringing in a high number of assignments. Others said it was simply the brokerage's history as a tenant representative firm. Some noted that tenants might be looking for space quietly and not appear on this list.
Insiders said CBRE, with just two assignments on the list, should not be counted out. The firm represented tenants in seven of the 10 largest deals that closed in the first half of 2010, a CoStar Group survey showed, including four deals for 300,000 square feet or more.
The three largest tenants in the market are all looking for up to 1 million square feet. They are: Condé Nast, which is represented by Mary Ann Tighe, CEO of CB Richard Ellis' New York office; Bank of America, which is represented by Jones Lang LaSalle and Cushman; and Morgan Stanley, which is represented by Newmark Knight Frank.
Tighe has a long-time relationship with Condé Nast, which she placed in its current location at the Durst Organization's 4 Times Square in 1996. The company is reportedly looking to take as much as 1 million square feet in 1 World Trade Center, where Durst was picked last month by the Port Authority to buy a stake in the tower. Currently under construction, 1 World Trade Center is scheduled for completion in 2013.
Peter Riguardi, president of the New York office of Jones Lang LaSalle, is representing Bank of America in its search for space Downtown, while Cushman brokers Mitchell Konsker and Tara Stacom are searching in Midtown. The bank has Midtown offices in 1 Bryant Park, but also has space occupied by Merrill Lynch, which it took over in 2008, that is expiring in 2013 at World Financial Center.
Newmark Knight Frank brokers Barry Gosin and Hal Stein are representing Morgan Stanley in its search for up to 1 million feet. Although headquartered at 1585 Broadway in Midtown, the financial firm also leases space at 1 New York Plaza in the Financial District.
Brokers differed on the meaning of the increase in activity.
Some interpreted the rise in large tenants on the prowl as a positive indicator, showing that companies want to commit to space now because they are anticipating that rents may rise quickly. But others noted that most of the tenants in the market, such as Deloitte and Condé Nast, may ultimately cut the amount of space they rent. So while those big guns are currently creating activity in the market, their moves will ultimately put additional downward pressure on prices and increase the Manhattan vacancy rate, which was 10.8 percent in the second quarter.
"Don't confuse the number of big deals with positive net absorption," said Dirk Hrobsky, managing director at tenant representative firm UGL Equis. "Right now these big deals are all just trading space and not increasing overall occupancy."
While most of the tenants have leases expiring in the next three years, some are further out, such as Condé Nast and Zurich American Insurance, now located in Downtown and Midtown locations. Zurich, which Hrobsky represents, has two locations with expirations in 2017, but has been reviewing options to lease Downtown, he said.
In addition, hunting for space and taking space are obviously two different things. Indeed, brokers said many of the tenants in the market will likely stay in their current locations, but use the deals they find to create leverage with their existing landlords.
Yet the optimists note that there is a limited supply in some markets. There were 21 blocks of space greater than 250,000 square feet available in Manhattan, Cushman reported last month. Joseph Harbert, COO of Cushman's New York office, noted that there were just nine blocks larger than 250,000 square feet available in Midtown. Some of the available spaces include 1 World Trade Center, 1 New York Plaza, Worldwide Plaza at 825 Eighth Avenue and 1221 Sixth Avenue, CoStar shows.
"At some point this is going to put [upward] pressure on pricing," Harbert said at the firm's media briefing last month. "It's going to end up being a game of musical chairs, and at some point someone may be left without a seat."
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