Skip Ribbon Commands
Skip to main content

News release

NEW YORK, NY

Jones Lang LaSalle Reports Stable New York Office Market in 2nd Quarter of 2012

Surge in leasing activity this spring brings Manhattan deal volume back up to levels typical of previous years; top five deals in 2nd quarter of 2012 were renewals


NEW YORK, July 9, 2012 — Jones Lang LaSalle announced a burst in leasing activity in the second quarter of the year that offset lackluster leasing activity throughout Manhattan earlier this year. While overall deal volume for the city is now on par with previous years, most other indicators at midyear 2012 point to a flat market.

“A sharp rebound in leasing activity surprised many in the second quarter as decision makers for some of New York's largest tenants chose to lock in renewals at current pricing,” said Peter Riguardi, president of Jones Lang LaSalle’s New York office. “A handful of major transactions, totaling more than 2.7 million square feet, in the spring spurred leasing volume to a level more typical of recent years. Other market indicators — vacancy, asking rents and absorption — were mostly stable.”

New York’s overall vacancy rate remained unchanged at 10.5 percent in the second quarter of 2012. The city’s Class A vacancy rate rose to 11.0 percent this quarter, an increase of 2.8 percent from the Class A vacancy rate of 10.7 percent the previous quarter. The Class B vacancy rate fell slightly to 10.0 percent at midyear 2012, a drop of 1.0 percent from the Class B vacancy rate of 10.1 percent in the first quarter of 2012.

Average asking rental rates inched up throughout Manhattan in the second quarter of the year. Class A rents rose to $65.62 per square foot this quarter, an increase of 1 percent from Class A rates of $64.94 per square foot the previous quarter. The city’s Class B rents grew to $45.61 per square feet at midyear 2012, a boost of 2.2 percent from Class B rates of $44.62 per square foot in the first quarter of the year.

“Although both direct and sublease blocks have returned to the market, the Midtown Class A vacancy rate has been roughly flat since last fall,” said Riguardi. “Asking rents have been steady, with the Class A average remaining above $70.00 per square foot, up from $67.44 per square foot at midyear 2011. Trophy rents, however, have drifted slightly lower as hedge fund activity has been tepid. Still, landlords in stronger positions have been reluctant to lower face rents. Many owners seem prepared to wait for a more landlord-favorable market in 2013 and 2014.”

While Midtown claimed three transactions larger than 350,000 square feet in the second quarter of 2012 — including the biggest lease so far this year — all the deals were renewals. Viacom Inc. renewed its lease of 1.6 million square feet at 1515 Broadway; Citibank, N.A. signed a renewal for 475,000 square feet at 601 Lexington Avenue; and Random House Inc. inked a renewal for 361,000 square feet at 1745 Broadway.

Midtown’s overall vacancy rate remained unchanged again at 11.5 percent at midyear 2012, making this the second consecutive quarter with no change in the submarket’s overall vacancy rate. The Class A vacancy rate also remained unchanged at 11.4 percent in the second quarter of 2012. Midtown’s Class B vacancy rate rose to 11.8 percent this quarter, an increase of 1.7 percent from the Class B vacancy rate of 11.6 percent the previous quarter.

Midtown posted a slight increase in average asking rental rates for all building classes in the second quarter of the year. Class A rents rose to $72.28 per square foot this quarter, an increase of less than 1 percent from Class A rates of $71.64 per square foot the previous quarter. Midtown’s Class B rents grew to $48.85 per square foot at midyear 2012, a boost of 1.8 percent from Class B rates of $48.00 in the first quarter of the year.

“Demand from technology and creative companies continues to drive up rents in Midtown South, causing the spread between Class A rents in Midtown and Midtown South to narrow,” said Riguardi. “After some sharp spikes in asking rents due to large blocks of high-quality space coming to the market, asking rent growth has been more modest in recent months.”

Leasing activity in Midtown South picked up in the second quarter of the year, with space users inking two deals larger than 100,000 square feet compared to none in the first quarter. This activity was offset by some large blocks coming to the market at 11 Madison Avenue and 770 Broadway. With no letup in demand for Midtown South space predicted in the foreseeable future, much of the available space is expected to dry up in the second half of the year.

Midtown South’s overall vacancy rate remained unchanged at 7.6 percent in the second quarter of 2012. The Class A vacancy rate rose to 11.8 percent this quarter, an increase of 14.6 percent from the Class A vacancy rate of 10.3 percent the previous quarter. The submarket’s Class B vacancy rate dropped to 6.3 percent at midyear 2012, a decrease of 6.0 percent from the Class B vacancy rate of 6.7 percent in the first quarter of the year.

Midtown South again recorded the highest percentage gains in average asking rental rates of any property class in any submarket in Manhattan. Class A rents rose to $67.99 per square foot in the second quarter of 2012, a boost of 7.4 percent from Class A rates of $63.33 per square foot in the first quarter of 2012. The submarket’s Class B rents grew to $46.57 per square foot this quarter, an increase of 5.0 percent from Class B rates of $44.34 per square foot the previous quarter.
 
“As previously predicted, blocks of space coming to the market at the World Trade Center and along Water Street drove both vacancy and asking rents higher in the second quarter,” said Riguardi. “We expect this trend to continue as additional tranches of space at Four World Trade Center are brought to the market and large blocks are returned to the market at the World Financial Center.”

While Lower Manhattan’s tenant base is becoming more diverse, the financial services industry still drives the market. The largest lease signed Downtown — and the second largest lease in Manhattan so far this year —was Morgan Stanley's renewal and expansion at One New York Plaza for more than 1 million square feet. The next largest transaction was the New York Film Academy's deal for about 75,000 square feet at 17 Battery Place South.

Lower Manhattan’s overall vacancy rate rose to 9.8 percent in the second quarter of 2012, an increase of 2.1 percent from the overall vacancy rate of 9.6 percent in the first quarter of 2012. The Class A vacancy rate increased to 9.8 percent this quarter, a boost of 8.9 percent from the Class A vacancy rate of 9.0 percent the previous quarter. Downtown’s Class B vacancy rate fell to 9.7 percent at midyear 2012, a drop of 9.3 percent from the Class B vacancy rate of 10.7 percent in the first quarter of the year.

A substantial increase in average asking rental rates for Class A buildings throughout Lower Manhattan offset a drop in rates for the submarket’s Class B product. Class A rents expanded to $45.51 per square foot in the second quarter of 2012, an increase of 4.0 percent from Class A rates of $43.75 per square foot in the first quarter of 2012. Downtown’s Class B rents dropped to $34.78 per square foot this quarter, a decrease of 2.2 percent from Class B rates of $35.56 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 $47.2 billion of assets under management. For further information, please visit www.joneslanglasalle.com.