New supply meets rising demand for space-hungry tech firms in Midtown South; large blocks of Class A space enter tight submarket
NEW YORK, NY – April 5, 2012 – (RealEstateRama) — Jones Lang LaSalle announced the New York office market remained relatively flat in the first quarter of 2012. Average asking rental rates rose slightly as more expensive office space is added to the market, and overall vacancy rates increased marginally. The addition of new space to Midtown South, which remains one of the tightest markets in the country, has opened up some breathing room for tech tenants clamoring for space in the submarket.
“The fourth quarter of 2011 saw a slowdown in the leasing velocity for New York, and that trend continued throughout the first quarter of 2012,” said Peter Riguardi, president of Jones Lang LaSalle’s New York office. “The statistics clearly show one of the slowest quarters since 2009. However, our tenant rep brokers are actively pursuing new business and negotiating transactions in the marketplace, and our agency portfolio has a tremendous amount of velocity and deal flow. We do expect the year’s performance to improve quarter by quarter.”
Although New York saw a marginal increase in overall vacancy rates in the first quarter of 2012, the boost is due to the addition of space at 51 Astor Place, 4 World Trade Center and Gem Tower, also known as 55 West 46th Street, to the city’s office inventory as well as a slight increase in sublease space. The overall vacancy rate rose to 10.5 percent in the first quarter of 2012, an increase of 1.0 percent from the overall vacancy rate of 10.4 percent in the fourth quarter of 2011. The city’s Class A vacancy rate increased to 10.7 percent this quarter, a boost of 2.9 percent from the Class A vacancy rate of 10.4 percent in the previous quarter. The Class B vacancy rate fell to 10.1 percent in the first quarter of the year, a drop of 3.8 percent from the Class B vacancy rate of 10.5 percent at year-end 2011.
Average asking rental rates barely changed throughout Manhattan in the first quarter of the year. Class A buildings saw rents rise to $64.94 per square foot in the first quarter of 2012, an increase of 1.4 percent from Class A rents of $64.04 per square foot in the fourth quarter of 2011. Midtown’s Class B product saw rents fall to $44.62 per square feet this quarter, a decrease of less than 1 percent from Class B rates of $44.67 per square foot the previous quarter.
Midtown’s overall vacancy rate remained unchanged at 11.5 percent this quarter, with an increase in Class A vacancy rates nearly offset by a drop in Class B vacancy rates. Class A vacancy rates rose to 11.4 percent in the first quarter of 2012, an increase of less than 1 percent from the Class A vacancy rate of 11.3 percent in the fourth quarter of 2011. The submarket’s Class B vacancy rate fell to 11.6 percent this quarter, a decrease of 2.5 percent from the Class B vacancy rate of 11.9 percent the previous quarter.
Midtown’s Class A buildings posted a small increase in average asking rental rates in the first quarter of the year, while the submarket’s Class B product saw a minor drop in rents. Class A buildings saw rents increase to $71.64 per square foot in the first quarter of 2012, a boost of 1.2 percent from Class A rents of $70.82 per square foot in the fourth quarter of 2011. Rates for Midtown’s Class B buildings fell to $48.00 per square foot, a drop of less than 1 percent from Class B rates of $48.17 the previous quarter.
Although Midtown South recorded a 22.6 percent increase in overall vacancy rates in the first quarter of the year, the growth was mostly fueled by the addition of 400,000 square feet of Class A office space at 51 Astor Place to the city’s office inventory. The building is under construction and is expected to be completed later this year.
Midtown South’s overall vacancy rate rose to 7.6 percent in the first quarter of 2012, an increase of 22.6 percent from the overall vacancy rate of 6.2 percent in the fourth quarter of 2011. Class A buildings saw vacancy rates climb to 10.3 percent this quarter, a boost of 58.5 percent from the Class A vacancy rate of 6.5 percent the previous quarter. The submarket’s Class B vacancy rate grew to 6.7 percent in the first quarter of 2012, an increase of 8.1 percent from the Class B vacancy rate of 6.2 percent at year-end 2011.
“Jones Lang LaSalle works with many high-tech tenants and their No. 1 frustration has been a lack of expansion opportunities, especially in institutional-quality buildings,” said Riguardi. “Midtown South is one of the tightest office markets in the country, causing many tenants to expand their search to Midtown and Downtown. The fact is that many tech firms still want to be in Midtown South, and we’ve seen some new opportunities emerge recently to respond to this demand.”
Midtown South continued to post the highest percentage gains in average asking rental rates of any property class in any submarket in Manhattan. The submarket’s top-end properties recorded rents of $63.33 per square foot in the first quarter of 2012, an increase of 7.5 percent from Class A rents of $58.92 per square foot in the fourth quarter of 2011. Class B buildings saw rents of $44.34 per square foot this quarter, an increase of 4.6 percent from Class B rates of $42.41 per square foot the previous quarter.
Lower Manhattan recorded positive fundamentals this quarter, despite the prospect of a large increase in vacancy rates later this year as new office buildings and large blocks of existing office space are added to the inventory. The submarket’s overall vacancy rate fell to 9.6 percent in the first quarter of 2012, dropping 5.0 percent from the overall vacancy rate of 10.1 percent in the fourth quarter of 2011. Class A vacancy rates remained unchanged this quarter at 9.0 percent. Downtown’s Class B vacancy rate fell to 10.7 percent in the first quarter of the year, a drop of 11.6 percent from the Class B vacancy rate of 12.1 percent at year-end 2011.
“The most surprising trend to surface this year has been the resilience of Downtown,” said Riguardi. ”Many of us in the industry were forecasting that, at this point in the recovery, Lower Manhattan would be facing weak demand and excess space. However, price, quality of life improvements, and better commutes for the growing workforce has been compelling enough for some tenants to make the move.
Whether it’s a generational or cultural shift, Downtown is becoming more popular to new industries. Four of the six largest deals signed in the first quarter of 2012 were at Lower Manhattan locations. In addition, three of the largest deals were from demand outside the submarket, including the Condé Nast that was announced this past year.”
Class A buildings throughout Lower Manhattan posted an increase in average asking rental rates, while the submarket’s Class B product lost ground on rents. High-end buildings Downtown reported rents increased to $43.75 per square foot in the first quarter of 2012, an increase of 3.4 percent from
the Class A rate of $42.33 per square foot in the fourth quarter of 2012. Downtown’s Class B buildings saw rates drop to $35.56 per square foot this quarter, a decrease of 3.3 percent from the Class B rate of $36.77 per square foot the previous quarter.
Jones Lang LaSalle is a leader in the New York tri-state commercial real estate market, with more than 1,750 of the most recognized industry experts offering brokerage, capital markets, facilities management, consulting, and project and development services. In 2011, the New York tri-state team completed approximately 15.9 million square feet in lease transactions, completed capital markets transactions valued at $1.57 billion, managed projects valued at more than $6.8 billion, and oversaw a property and facilities management portfolio of 106.4 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 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 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 $47.7 billion of assets under management. For further information, please visit our website, www.joneslanglasalle.com.
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