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Doomsayers Are Wrong

By STEVE CUOZZO

October 6, 2009 -- THE United Nations has taken nearly 120,000 square feet of office space at TIAA's 730 Third Ave. -- the latest in a flurry of large signings since early summer in what many had expected to be a miserable leasing season.

The UN was repped by First Service Williams principal Andrew Roos, who worked with Donald Lutt of the firm's consulting group. The landlord was repped by CB Richard Ellis' Howard Fiddle, Zachary Freeman and Rima Shpolyansky.

The brokers either didn't return calls or declined to comment. But Werner Schmidt, a UN public information officer, said the lease for three floors through the end of 2013 is a "mixture" of expansion by the world body and relocation indirectly made necessary by the UN's ongoing restoration of its 2.5 million square-foot headquarters.

"We're moving 6,500 staffers around because of the renovations," Schmidt said. "However, the lease of these floors is not directly related to it."

Schmidt said the 840,000 square-foot Secretariat building, is now "almost empty." As the work goes on, he said, staff have been moved temporarily to other locations including 380 Madison Ave. and 305 E. 46th St.

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The UN deal follows recent large transactions that have helped shore up the market even as companies contract.

Summer saw big-ticket expansions by Mizuho Corporate Bank, MLB Advanced Media, Loeb & Loeb, Gap, Syska Hennessy Group, Moelis & Co. and Instinet -- most for 100,000-plus square feet.

Which raises the question: With so much activity, how bad can the leasing market be?

Very, very bad, according to New York magazine. A story last week about how office towers have lost their value cited an assertion that Midtown's vacancy rate hit 17 percent as of Aug. 1 -- a provocative claim in an article seeking to demonstrate that landlords can only see the value of their investments decline.

There's no question that the investment-sale market remains paralyzed or that asking rents are down by as much as 30 percent from a year ago. But brokers say reduced demand has not yet resulted in astronomical vacancy rates.

New York's 17 percent estimate drew howls from industry players who point out that the magazine based its claim on the word of a single small brokerage, Tenantwise.com.

In the aftermath of 9/11, its founder, M. Myers Mermel, repeatedly claimed that 20 percent of downtown's office space was "available" -- an assertion no one else could confirm.

Mermel's data was based partly on the notion that a lot of occupied space was secretly up for grabs. But downtown vacancies as reported by major brokerages never approached 20 percent; a few years later, downtown was actually the tightest office market in the US.

Yesterday, CB Richard Ellis Global Brokerage Chief Stephen Siegel called the estimate of 17 percent vacancy "horse[bleep]. That number is almost double the real vacancy number."

CBRE says that as of Sept. 1, Midtown's vacancy was 9.4 percent, down from 9.5 percent one month earlier. Even "availability" -- a figure that includes space to be vacant up to 12 months from now -- was just 14.8 percent.

And Cushman & Wakefield reports a Midtown vacancy rate at the end of August, including available within six months, of 11.9 percent.

Mermel defended his claim, saying his firm tracks 12,000 commercial buildings and, "We think transparency is best. The scoreboard has proved us correct over time."

He acknowledged his vacancy estimate includes "shadow space," which he defined as "space not officially on the market but open to brokers to lease."

But, as one prominent market- follower said of Mermel's downtown data in 2002, "It's guesswork. . . They're trying to fathom the intentions of tenants who occupy space, and you can't do that."

Copyright 2009 NYP Holdings, Inc.
 

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