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News release

NEW YORK, NY

Midtown Class A Vacancy Rate Drops Below 10% for 1st Time in 7 Years

JLL research finds strong leasing activity in Lower Manhattan reduces vacancy rate by full percentage point since 1st quarter


NEW YORK, October 8, 2015 — Despite a slowdown in leasing activity in the third quarter of 2015, Midtown Class A vacancy rates dropped below 10.0 percent for the first time in seven years, according to JLL. The submarket has not recorded figures this low since the Class A vacancy rate was 9.0 percent in the third quarter of 2008. This quarter also marked the eighth consecutive month the submarket has benefitted from tightening Class A vacancy rates.

“The third quarter is traditionally the slowest of the year in New York, and 2015 was no different,” said Tristan Ashby, Vice President and Director of New York research said. “We expect Midtown vacancy rates to increase in the coming months. Even with the return of strong activity this fall, JLL is tracking a number of large blocks that will come to market during the next several quarters that could temper or reverse recent gains in occupancy.”

In the third quarter, only one transaction was completed in Midtown in excess of 100,000 square feet. Professional social media network LinkedIn committed to an expansion of 120,000 square feet at 350 Fifth Avenue, bringing its total footprint at the building to 280,000 square feet. The submarket is still ahead in large-block leases compared with the same period this past year, recording 21 leases in excess of 100,000 square feet year to date, compared with 18 in the first three quarters of 2014.

Midtown’s overall vacancy rate fell to 9.3 percent this quarter, a decrease of 3.1 percent (or 0.3 percentage points) from 9.6 percent at midyear 2015. Year-over-year, the submarket’s overall vacancy rate dropped 7.9 percent (or 0.8 percentage points) from 10.1 percent in the third quarter of 2014. The Class A vacancy rate declined 4.9 percent (or 0.5 percentage points) to 9.8 percent in the third quarter of 2015 from 10.3 percent the previous quarter. Year-over-year, Midtown’s Class A vacancy rate dropped 10.9 percent (or 1.2 percentage points) from 11.0 percent in the third quarter of 2014.

Overall average asking rents in Midtown rose to $72.90 per square foot this quarter, an increase of 1.0 percent from $71.21 per square foot at midyear 2015. Year-over-year, the submarket’s overall rates grew 3.7 percent from $70.29 per square foot in the third quarter of 2014. Class A average asking rents rose to $80.31 per square foot in the third quarter of 2015, an increase of 1.2 percent from $79.33 per square foot in the previous quarter. Year-over-year, Midtown’s Class A rates rose 4.1 percent from $77.13 per square foot in the third quarter of 2014.

Two of the top five leases signed in the third quarter of 2015 were not located in Manhattan. WeWork took 222,000 square feet at Dock 72 in the Brooklyn Navy Yard, and Macy’s inked a lease for 150,000 square feet at The Factory in Long Island City.

Manhattan’s overall vacancy rate fell to 9.4 percent this quarter, a decrease of 3.1 percent (or 0.3 percentage points) from 9.7 percent at midyear 2015. Year-over-year, the city’s overall vacancy rate dropped 3.1 percent (or 0.3 percentage points) from 9.7 percent in the third quarter of 2014. The Class A vacancy rate declined 4.7 percent (or 0.5 percentage points) to 10.1 percent in the third quarter of 2015 from 10.6 percent the previous quarter. Year-over-year, Manhattan’s Class A vacancy rate dropped 4.7 percent (or 0.5 percentage points) from 10.6 percent in the third quarter of 2014.

Overall average asking rents in New York rose to $68.17 per square foot this quarter, an increase of less than 1.0 percent from $67.63 per square foot at midyear 2015. Year-over-year, the city’s overall rates grew 5.0 percent from $64.91 per square foot in the third quarter of 2014. Class A average asking rents rose to $75.36 per square foot in the third quarter of 2015, an increase of less than 1.0 percent from $74.73 per square foot in the previous quarter. Year-over-year, Manhattan’s Class A rates rose 5.2 percent from $71.66 per square foot in the third quarter of 2014.

Midtown South
Midtown South posted two deals larger than 50,000 square feet in the third quarter of 2015. Horizon Media accounted for one of them while expanding twice at 75 Varick Street, taking 68,404 square feet currently occupied by Metropolitan College of New York on the 12th floor and another 34,412 square feet on the 10th floor. Online retailer One Kings Lane inked another large deal, a short-term lease for 51,576 square feet at 315 Hudson Street. In addition, William Morris Endeavor expanded its footprint at 11 Madison Avenue by 33,000 square feet — to a total of 104,000 square feet — at rents reportedly higher than the current market rate. SL Green Realty Corp. recently closed on the purchase of 11 Madison Avenue for $2.6 billion, representing the largest single-building transaction in New York history.

Midtown South’s overall vacancy rate fell to 6.7 percent this quarter, a decrease of 6.9 percent (or 0.5 percentage points) from 7.2 percent at midyear 2015. Year-over-year, the submarket’s overall vacancy rate remained unchanged at 6.7 percent. The Class A vacancy rate declined 5.9 percent (or 0.4 percentage points) to 6.4 percent in the third quarter of 2015 from 6.8 percent the previous quarter. Year-over-year, Midtown South’s Class A vacancy rate increased 56.1 percent (or 2.3 percentage points) from 4.1 percent in the third quarter of 2014.

While average asking rental rents continued to climb across all classes in the third quarter of 2015, much of the improvement was the result of new and renovated space entering the market. At $79.44 per square foot, Midtown South Class A buildings remain on par with pricing for Midtown office product. Overall average asking rents in Midtown South rose to $69.80 per square foot this quarter, an increase of 2.6 percent from $68.03 per square foot
at midyear 2015. Year-over-year, the submarket’s overall rates grew 18.6 percent from $58.83 per square foot in the third quarter of 2014. Class A average asking rents rose to $79.44 per square foot in the third quarter of 2015, an increase of less than 1.0 percent from $79.24 per square foot in the previous quarter. Year-over-year, Midtown South’s Class A rates rose 12.0 percent from $70.94 per square foot in the third quarter of 2014.

Downtown
Seven of Manhattan’s top nine third-quarter deals were completed in Lower Manhattan, a significant improvement over the previous two quarters when only one of the top 36 Manhattan deals was signed Downtown. KCG signed the largest lease of the quarter, inking a 168,873-square-foot relocation from 1 Liberty Plaza and 545 Washington Boulevard in Jersey City to 300 Vesey Street, also known as Brookfield Place. Additional noteworthy transactions include the NYC Department of City Planning taking 115,011 square feet at 120 Broadway, Ironshore signing for 101,958 square feet at 28 Liberty Street, and Gucci moving from Midtown into 83,964 square feet at 195 Broadway.

The considerable leasing activity Downtown has posted in the third quarter, along with only one new large block added to the submarket’s inventory, pushed down vacancy rates by a full percentage point between the first quarter and the third quarter. Lower Manhattan’s overall vacancy rate fell to 11.5 percent this quarter, a decrease of 3.4 percent (or 0.4 percentage points) from 11.9 percent at midyear 2015. Year-over-year, the submarket’s overall vacancy rate rose 8.5 percent (or 0.9 percentage points) from 10.6 percent in the third quarter of 2014. The Class A vacancy rate declined 5.3 percent (or 0.7 percentage points) to 12.4 percent in the third quarter of 2015 from 13.1 percent the previous quarter. Year-over-year, Downtown’s Class A vacancy rate grew 10.7 percent (or 1.2 percentage points) from 11.2 percent in the third quarter of 2014.

Class A asking rents in Lower Manhattan showed signs of moderating for the first time in 17 quarters, decreasing by $0.35 quarter-over-quarter to $61.81 per square foot. Although this was partly attributable to KCG’s lease at 300 Vesey Street taking higher-priced space off the market, another four Downtown buildings posted lower asking rents and only one building posted higher asking rents in the third quarter.

Overall average asking rents in Lower Manhattan fell to $56.53 per square foot this quarter, a decrease of less than 1.0 percent from $57.05 per square foot at midyear 2015. Year-over-year, the submarket’s overall rates grew 6.4 percent from $53.12 per square foot in the third quarter of 2014. Class A average asking rents dropped to $61.81 per square foot in the third quarter of 2015, a decrease of less than 1.0 percent from $62.16 per square foot in the previous quarter. Year-over-year, Downtown’s Class A rates rose 7.2 percent from $57.66 per square foot in the third quarter of 2014.

JLL is a leader in the New York tri-state commercial real estate market, with more than 2,000 of the most recognized industry experts offering brokerage, capital markets, property/facilities management, consulting and project and development services. In 2014, the New York tri-state team completed approximately 22.8 million square feet of lease transactions, arranged investment sales transactions valued at more than $5.4 billion, managed projects valued at $7.6 billion, and oversaw a property management, facilities management and agency leasing portfolio exceeding 163 million square feet.

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About JLL
JLL (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. A Fortune 500 company with annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000.  On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $56.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.