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News release

New York

Jones Lang LaSalle Report Shows Pace of Rent Decreases Slows in New York’s Trophy Office Buildings

Midtown posts smaller rent drops in past six months

NEW YORK, December 21, 2009 — Jones Lang LaSalle’s fall 2009 Skyline Review detailed that the pace of rent decreases has declined for trophy-quality buildings in the Midtown office submarket as the economy stabilizes. The fall 2009 Skyline Review reported a smaller rate drop in Midtown than was posted six months earlier in the spring 2009 Skyline Review.
The fall 2009 Skyline Review found that Midtown’s top-end buildings saw average asking rental rates fall 17.2 percent, dropping to $73.58 per square foot from $88.88 per square foot six months earlier. The spring 2009 Skyline Review had noted a 24.3 percent drop in rents in Midtown trophy buildings.
“Although there appears to be some stability in the Midtown market, it is still too early to definitively say that vacancy has peaked,” said James Delmonte, vice president and director of research for Jones Lang LaSalle’s New York office. “While it is important that activity has returned to the market, it is not likely that it will lead to substantial absorption of space over the next 12 months. Much of the current deal flow in the market consists of renewals and relocations, neither of which will reduce current supply levels.”
The fall 2009 Skyline Review reported that New York’s top-end office buildings saw overall average asking rental rates drop 17.8 percent vs. a decrease of 18.7 percent six months earlier. Rents for the city’s trophy buildings fell to $68.73 per square foot from $83.66 per square foot in the fall 2009 Skyline Review. Despite weakened conditions, however, the top end of the market still commands a double-digit premium over the broader market.
Lower Manhattan’s trophy buildings, which had escaped double-digit rent declines over the past several years, recorded the largest drop in average asking rental rates, according to the fall 2009 Skyline Review. Downtown’s top-end buildings reported rent decreases of nearly 22 percent, slipping to $47.16 square foot from $60.23 per square foot six months ago.
“Vacancy rates for Downtown New York trophy-class properties have remained around 9 percent over the past few months,” said Delmonte. “It is likely that availability will spike over the next several years as several large institutions have yet to finalize occupancy plans. Depending on what decisions are made, vacancy rates in Lower Manhattan could potentially rise above 20 percent by 2014.”
Office-using employment — financial, legal and professional services — is historically the best indicator of demand for trophy quality and Class A space in Manhattan. Despite the apparent rebound in the financial markets, many are projecting that office-using employment over the next few years will be extremely weak. Citing structural changes in the industry, some economists do not see meaningful job creation in financial services until 2012 or 2013.
The city’s overall vacancy rate is expected to peak in 2010 and begin to gradually decline as employment turns positive. Space will continue to come to the market, albeit at a slower pace, through the next 12 months. Downtown could be the exception, where consolidation among the district’s largest tenants has yet to be finalized and major dispositions in Downtown’s trophy properties are still possible.
Like previous cycles, there is evidence that some tenants may chose to hold on to space rather than sublease at a significant loss. While this may temper the vacancy rate in the near-term, it suggests that new demand could be delayed for even longer: either tenants will expand into existing inventory when the economic recovery arrives or they will let direct space expire over the next few years.
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 2008 global revenue of $2.7 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 1.4 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 more than $37 billion of assets under management. For further information, please visit our Web site,
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