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News release

NEW YORK, NY

Jones Lang LaSalle Sees Boost in Overall Rents, Drop in Overall Vacancy in New York

Value space throughout Manhattan, high-end space in Midtown see sustained leasing, while midrange, Class A product in Midtown struggles in 3rd quarter of 2013


NEW YORK, October 3, 2013 — Jones Lang LaSalle reported that sustained leasing activity for value-priced office space throughout Manhattan and high-end office product in Midtown helped drive New York's average asking rental rates up and vacancy rates down in the third quarter of 2013.

Although average asking rental rates for Midtown Class A space have hovered in the mid-$70s per square foot for most of the year, that represents the weakest segment of the submarket. With many space users looking for value deals, nearly 40 percent of Midtown leasing activity this year has been in office product posting asking rents of less than $60 per square foot. There has been almost as much activity at the top end of the market, with nearly 30 percent of deal volume occurring in trophy spaces posting asking rents above $80 per square foot.

“New York’s office market is performing well at the edges,” said Tristan Ashby, director of research for JLL’s New York tri-state office. “Value space and high-value product remain in demand, while full-price, core, Midtown Class A spaces seem to be struggling. The bulk of Midtown deal volume in the third quarter was for spaces with average asking rental rates south of $60 per square foot or north of $80 per square foot.”

New York’s overall vacancy rate fell to 11.8 percent this quarter, a decrease of 2.5 percent (or 0.3 percentage points) from 12.1 percent at midyear 2013. In the past year, the overall vacancy rate increased 11.3 percent (or 1.2 percentage points) from 10.6 percent in the third quarter of 2012.

The Class A vacancy rate dropped to 13.0 percent in the third quarter, a decrease of 3.0 percent (or 0.4 percentage points) from 13.4 percent the previous quarter. In the past year, the city’s Class A vacancy rate increased 16.1 percent (or 1.8 percentage points) from 11.2 percent in the third quarter of 2012.

New York saw overall average asking rents rise to $61.11 per square foot this quarter, an increase of less than 1.0 percent from $60.66 per square foot at midyear 2013. In the past year, overall rents increased 4.6 percent from $58.40 per square foot in the third quarter of 2012.

The city’s Class A rents grew to $68.13 per square foot in the third quarter, an increase of less than 1.0 percent from $67.81 per square foot the previous quarter. In the past year, Class A rents rose 2.8 percent from $66.25 per square foot in the third quarter of 2012.

Midtown
Large Midtown deals were down by 50 percent in the third quarter of 2013, with renewal transactions claiming three of the five top leases. The submarket recorded just four transactions larger than 100,000 square feet this quarter, compared with eight big deals in the previous quarter. Capital One signed a 250,000-square-foot sublease at 299 Park Avenue, ING US Inc. inked a 144,000-square-foot renewal at 230 Park Avenue, Empire State Development Corp. signed a 104,200-square-foot renewal at 633 Third Avenue, and Baker Botts completed a 104,161-square-foot renewal at 30 Rockefeller Plaza.

The area continues to see gains in the number of high-price deals. Over the past nine months, Midtown recorded 46 leases with starting rents at $100 per square foot or higher, compared with 28 at this point in 2012.

Midtown’s overall vacancy rate fell to 11.8 percent this quarter, a decrease of 2.5 percent (or 0.3 percentage points) from 12.1 percent at midyear 2013. In the past year, overall vacancy rose 1.7 percent (or 0.2 percentage points) from 11.6 percent in the third quarter of 2012.

The submarket’s Class A vacancy dropped to 12.6 percent in the third quarter, a decrease of less than 1.0 percent (or 0.1 percentage points) from 12.7 percent the previous quarter. In the past year, the Class A vacancy rate increased 8.6 percent (or 1.0 percentage points) from 11.6 percent in the third quarter of 2012.

Overall average asking rental rates in Midtown rose to $66.79 per square foot this quarter, an increase of less than 1.0 percent from overall rates of $66.45 per square foot at midyear 2013. In the past year, overall rents grew 4.3 percent from $64.01 per square foot in the third quarter of 2012.

The submarket’s Class A rents grew to $74.36 per square foot, an increase of less than 1.0 percent from $74.26 per square foot the previous quarter. In the past year, Class A rents rose 2.3 percent from $72.70 per square foot in the third quarter of 2012.

Midtown South
Smaller tenants drove most Midtown South activity in the third quarter of 2013, demonstrated by a drop in larger transactions during the period. Five leases greater than 50,000 square feet were signed in Midtown South this quarter, down from seven in the previous quarter. Beth Israel Comprehensive Cancer Center, IMG Worldwide and Warby Parker all completed deals exceeding 50,000 square feet in the third quarter.

The strong market in Chelsea has incentivized many building owners to renovate and remarket their space at higher rents. Approximately 200,000 square feet was put on the market between June and September. The biggest block of space came after the General Services Administration vacated about 164,000 square feet at 601 West 26th Street. Another 25,000 square feet opened up when Interpublic left 28 West 23rd Street.

Midtown South’s overall vacancy rate rose to 8.5 percent, an increase of 4.9 percent (or 0.4 percentage points) from 8.1 percent at midyear 2013. In the past year, the overall vacancy rate climbed 21.4 percent (or 1.5 percentage points) from 7.0 percent in the third quarter of 2012.

The submarket’s Class A vacancy rate fell to 6.7 percent, a decrease of 4.3 percent (or 0.3 percentage points) from 7.0 percent the previous quarter. In the past year, the Class A vacancy rate plummeted 30.2 percent (or 2.9 percentage points) from 9.6 percent in the third quarter of 2012.

Overall average asking rental rates in Midtown South rose to $57.52 per square foot this quarter, an increase of 1.4 percent from overall rates of $56.73 per square foot at midyear 2013. In the past year, overall rents grew 4.0 percent from $55.29 per square foot in the third quarter of 2012.

The submarket’s Class A rents fell to $75.06 per square foot, a decrease of 1.3 percent from $76.07 per square foot the previous quarter. In the past year, Class A rents rose 7.6 percent from $69.74 per square foot in the third quarter of 2012.

Downtown
Steady leasing activity in Lower Manhattan fueled the first drop in vacancy rates for all the submarket’s office property classes for the first time since the third quarter of 2011. Four of the top 10 transactions signed in the third quarter of 2013 occurred Downtown, with the New York City Health and Hospitals Corp., Scotiabank, Droga5 and WeWork all inking leases of 80,000 square feet or more. The city’s creative industries — led by advertising and technology firms — accounted for 28.4 percent of all Downtown leasing this quarter, while the submarket’s traditional office tenants — legal and financial services — were responsible for 17.9 percent of total leasing volume.

Downtown’s overall vacancy rate fell to 13.7 percent this quarter, a decrease of 5.5 percent (or 0.8 percentage points) from 14.5 percent at midyear 2013. In the past year, the overall vacancy rate climbed 35.6 percent (or 3.7 percentage points) from 10.1 percent in the third quarter of 2012.

The Class A vacancy rate dropped to 15.5 percent, a decrease of 6.6 percent (or 1.1 percentage points) from 16.6 percent the previous quarter. In the past year, the Class A vacancy rate jumped 47.6 percent (or 5.0 percentage points) from 10.5 percent in the third quarter of 2012.

Overall average asking rental rates Downtown rose to $49.91 per square foot this quarter, an increase of less than 1.0 percent from $49.60 per square foot at midyear 2013. In the past year, overall rents grew 15.4 percent from $43.25 per square foot in the third quarter of 2012.

Lower Manhattan’s Class A rents grew to $54.63 per square foot, an increase of less than 1.0 percent from $54.51 per square foot at midyear 2013. In the past year, Class A rents rose 15.4 percent from $47.35 per square foot in the third quarter of 2012 as the market was flooded with trophy space at the World Trade Center, 180 Maiden Lane and Brookfield Place. A year ago, available space at Trophy properties accounted for 29.6 percent of Downtown’s available space; as of the end of September 2013, it was 54.3 percent.

JLL 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, property/facilities management, consulting, and project and development services. In 2012, the New York tri-state team completed approximately 23.8 million square feet in lease transactions, arranged capital markets transactions valued at $1.57 billion, managed projects valued at nearly $7.0 billion, and oversaw a property and facilities management portfolio of 102.1 million square feet and an agency leasing portfolio of 76.0 million square feet.

About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.3 billion of real estate assets under management. For further information, visit www.jll.com.