Proprietary report highlights first increase in average asking rental rates for the city’s high-end office product since spring 2008
NEW YORK, NY – January 18, 2011 – (RealEstateRama) — Jones Lang LaSalle reported in its winter 2010 Skyline Review that Midtown’s trophy office buildings posted the first increase in average asking rental rates since spring 2008. In the second half of 2010, the submarket’s high-end buildings saw rents grow by 6.8 percent compared with a 1.2 percent drop in rents in the first half of the year. Rates for Midtown’s highest-quality spaces increased to $77.65 per square foot in winter 2010 from $72.71 per square foot six months earlier.
“Since New York’s office market has reached bottom, activity is expected to strengthen in the near-term, with recovery beginning at the top end of the market,” said James Delmonte, vice president and director of research for Jones Lang LaSalle’s New York office. “Average asking rents among Midtown’s trophy set of properties have moved higher in recent months. Several of the submarket’s top-end buildings have recorded asking rents north of $100 per square foot on some select spaces.“
Recent deals in Midtown suggest greater demand for premium space at the submarket’s most prestigious addresses. Through November 2010, Midtown recorded nine deals with starting rents of at least $100.00 per square foot compared with 14 deals at that level during all of 2009.
“Landlords in trophy properties appear eager to raise asking rents and evidence shows that some tenants are willing to pay top rents for the best space,” said Delmonte. “Coveted trophy space is already being steadily absorbed as tenants seek to take advantage of high-quality space opportunities while they still exist.”
Vacancy rates among Midtown’s trophy properties have dropped considerably since year-end 2009, tightening from 13.1 percent in December 2009 to 10.1 percent at year-end 2010. Rents for Midtown Class A buildings reached their peak at $96.00 per square foot in the winter 2008 and, since then, pricing has fallen by nearly 32 percent. Net effective rents, which include periods of free rent and landlord work allowances, were down by 46 percent from peak.
Overall, New York’s trophy market posted the first increase in average asking rental rates since spring 2008. In the second half of 2010, the city’s top-end office buildings saw rents increase nearly 1 percent compared to a 1.7 percent decrease in the first six months of the year. Rates for the city’s trophy properties rose to $68.09 per square foot in winter 2010 from $67.58 per square foot six months earlier.
“Whether there is enough demand to push average trophy rents significantly higher in the near term is less clear,” said Delmonte. “While high-end financial services — hedge funds, private equity, mergers and acquisitions — are responsible for driving prices at the very top, several large-plate trophy properties depend on more typical financial activities, such as traditional banking and trading operations, for occupancy in the base and middle floors of their buildings. Mid-size and large blocks of space in this segment are still not in great demand.”
Lower Manhattan’s trophy buildings reported rent increases of 2.4 percent in winter 2010, rising to $47.76 per square foot from $46.65 per square foot six months ago. In spring 2010, high-end buildings in Downtown New York saw a 1.1 percent drop in rents in the first half of 2010.
While the submarket’s trophy-quality space has seen growth in rents, vacancy rates have risen substantially. Lower Manhattan’s high-end buildings saw vacancy rates of 12 percent in December 2010, up from 7 percent at the close of 2009. The increase was due largely to the addition to the market of space at 85 Broad Street, the former headquarters for investment bank Goldman Sachs.
Average rates for Class A space Downtown have followed a similar trajectory as Midtown. Currently averaging nearly $41 per square foot, asking rates for prime space Downtown are off 26 percent from peak, while net effectives have corrected by 46 percent.
“The outlook for Manhattan’s trophy market is more secure than the rest of its office product as the city is ultimately supply constrained,” said Delmonte. “The most desirable addresses are limited and prime development sites are rare. Despite the inevitable cycle in the financial markets and the emergence of several Asian and European financial capitals, New York is unlikely to cede its place anytime soon as a dominant player. In fact, entities from these emerging economies are now competing for space in the Manhattan.”
Jones Lang LaSalle’s Skyline Review is a proprietary report that analyzes the premier buildings in Midtown and Downtown Manhattan – those buildings that truly move the market. The company’s New York Skyline Review includes buildings that meet one or more of the following criteria: built or significant renovations since 1985, high-profile location, recognized tenant profile and/or architectural significance. Some buildings do not appear in the New York Skyline Review but are tracked for statistical purposes as part of the inventory of trophy buildings.
Jones Lang LaSalle is a leader in the New York tri-state commercial real estate market, with more than 1,600 of the most recognized industry experts offering brokerage, capital markets, facilities management, consulting, and project and development services. In 2009, the New York tri-state team completed approximately 21 million square feet in lease transactions, concluded property sales transactions valued at more than $1.75 billion, managed projects valued at more than $4 billion, and oversaw a property and facilities management portfolio of 76 million square feet.
About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2009 global revenue of $2.5 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.6 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with approximately $40 billion of assets under management. For further information, please visit our website, www.joneslanglasalle.com
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