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News release

NEW YORK, NY

Strong Demand for Class B Space Fuels Boost in Rents

Overall, Class A vacancy rates increase, average asking rental rates inch up throughout New York in first quarter of 2016


NEW YORK, April 5, 2016 — Class A vacancy rates rose throughout much of New York’s office market in the first quarter of 2016 as a handful of large blocks of available space were returned to the market, according to JLL. Midtown recorded the sixth consecutive month of increases in Class A vacancy rate, reaching 11.6 percent this quarter, up from a recent low of 9.8 percent recorded in the third quarter of 2015.

Midtown’s overall vacancy rate rose to 10.4 percent this quarter, an increase of 5.1 percent (or 0.5 percentage points) from 9.9 percent at year-end 2015. Year-over-year, the submarket’s overall vacancy rate grew 4.0 percent (or 0.4 percentage points) from 10.0 percent in the first quarter of 2015. The Class A vacancy rate grew to 11.6 percent in the first quarter of 2016, an increase of 11.5 percent (or 1.2 percentage points) from 10.4 percent the previous quarter. Year-over-year, Midtown’s Class A vacancy rate rose 6.4 percent (or 0.7 percentage points) from 10.9 percent in the first quarter of 2015.

“Despite some caution in the tech sector, we’re still seeing activity both from marquee names and startups,” said Tristan Ashby, Vice President and Director of New York research. “Early-stage tech demand is showing up in the sublease and Class B markets, where tenants can often find shorter terms.”

Recent landlord rent reductions in Midtown were outweighed by top-tier space coming to the market at 390 Madison Avenue as well as several floors at 250 West 55th Street that were previously occupied by Al Jazeera. The overall average asking rent recorded greater gains, as demand for Class B space tightened vacancy.

Overall average asking rents in Midtown rose slightly to $74.98 per square foot this quarter, an increase of 2.4 percent from $73.19 per square foot at year-end 2015. Year-over-year, the submarket’s overall rates grew 4.7 percent from $71.60 per square foot in the first quarter of 2015. Class A average asking rents rose to $81.09 per square foot in the first quarter of 2016, an increase of 1.1 percent from $80.24 per square foot the previous quarter. Year-over-year, Midtown’s Class A rates rose 3.4 percent from $78.42 per square foot in the first quarter of 2015.

About the same number of large-block transactions—100,000 square feet or greater—closed in Midtown this quarter compared with one year ago, with the submarket posting six large-block leases year-to-date vs. seven in the first quarter of 2015.

In a sign that tenants might be more cautious, renewal transactions have returned to prominence this year. Renewals accounted for half of the top 10 Midtown leases signed year-to-date compared with just two in the first quarter of 2015. Salesforce.com signed the largest transaction of the quarter, subleasing 202,678 square feet at 1095 Avenue of the Americas from MetLife. As part of the lease, Salesforce.com will take over signage at the building.

Leasing activity throughout New York was moderate, although several notable leases closed in the first quarter of the year. McGraw Hill Financial Inc. inked the largest transaction signed so far this year, renewing 900,027 square feet at 55 Water Street. In addition to Salesforce.com’s sublease at 1095 Avenue of the Americas, Citadel LLC signed for 200,000 square feet at 425 Park Avenue and Facebook Inc. expanded again—by 29,735 square feet—at 770 Broadway.

Manhattan’s overall vacancy rate rose to 10.0 percent this quarter, an increase of 4.2 percent (or 0.4 percentage points) from 9.6 percent at year-end 2015. Year-over-year, the city’s overall vacancy rate remained unchanged. The Class A vacancy rate grew to 11.0 percent in the first quarter of 2016, an increase of 6.8 percent (or 0.7 percentage points) from 10.3 percent in the fourth quarter of 2015. Year-over-year, Manhattan’s Class A vacancy rate remained unchanged.

Overall average asking rents in New York rose to $70.18 per square foot this quarter, an increase of 2.1 percent from $68.73 per square foot at year-end 2015. Year-over-year, the city’s overall rates grew 5.2 percent from $66.74 per square foot in the first quarter of 2015. Class A average asking rents rose to $76.88 per square foot in the first quarter of 2016, an increase of 1.5 percent from $75.71 per square foot the previous quarter. Year-over-year, Manhattan’s Class A rates rose 4.0 percent from $73.90 per square foot in the first quarter of 2015.

Midtown South
After recording two consecutive quarters of positive absorption, Midtown South posted negative absorption of 335,890 square feet in the first quarter of 2016. As a result of continued low vacancy rates, the submarket witnessed its lightest quarter of leasing activity—approximately 586,395 square feet—since the first quarter of 2009. The submarket had just three large blocks available once the majority of the rentable space at 50 West 23rd Street was leased earlier this year by Grovo and Dropbox.

Midtown South still accounted for about 25 percent of the top 12 deals in Manhattan in the first three months of the year. In the largest lease this quarter, NY1 News renewed its lease of 82,879 square feet at 75 Ninth Avenue, otherwise known as Chelsea Market.

Midtown South’s overall vacancy rate rose to 6.9 percent this quarter, an increase of 9.5 percent (or 0.6 percentage points) from 6.3 percent at year-end 2015. Year-over-year, the submarket’s overall vacancy rate grew 13.1 percent (or 0.8 percentage points) from 6.1 percent in the first quarter of 2015. The Class A vacancy rate rose to 5.9 percent in the first quarter of 2016, an increase of 5.4 percent (or 0.3 percentage points) from 5.6 percent the previous quarter. Year-over-year, Midtown South’s Class A vacancy rate dropped 3.3 percent (or 0.2 percentage points) from 6.1 percent in the first quarter of 2015.

The submarket posted two new transactions with rents in excess of $100 per square foot in the first quarter of 2016. Facebook expanded its footprint at 770 Broadway onto space previously occupied by J. Crew. The social media giant now occupies 356,992 square feet, which is more than triple the amount it originally committed to three years ago. The second above-market lease was signed by Todd Street Productions Inc., which inked a short-term renewal for 17,052 square feet at Google Inc.’s 111 Eighth Avenue.

Overall average asking rents in Midtown South rose to $68.61 per square foot this quarter, an increase of less than 1.0 percent from $69.06 per square foot at year-end 2015. Year-over-year, the submarket’s overall rates grew 4.9 percent from $65.39 per square foot in the first quarter of 2015. Class A average asking rents rose to $79.59 per square foot in the first quarter of 2016, an increase of 1.5 percent from $78.41 per square foot the previous quarter. Year-over-year, Midtown South’s Class A rates dropped less than 1.0 percent from $79.97 per square foot in the first quarter of 2015.

Downtown
In the largest transaction signed year-to-date in Downtown, McGraw Hill Financial Inc. renewed its lease for 900,027 square feet at 55 Water Street. Other noteworthy leases included New York Life Insurance Co. signing a renewal for 53,818 square feet at 120 Broadway, ABM Industries Inc. committing to move from 120 Broadway into 44,025 square feet at 1 Liberty Plaza, and Rocket Fuel Inc. relocating from Midtown into 41,982 square feet at 195 Broadway. Downtown was statistically flat for the first quarter of the year, with the submarket posting light new leasing activity. No new large blocks of space were added to the inventory in Lower Manhattan this quarter.

The submarket’s overall vacancy rate remained unchanged at 11.1 percent this quarter. Year-over-year, the submarket’s overall vacancy rate dropped 11.2 percent (or 1.4 percentage points) from 12.5 percent in the first quarter of 2015. The Class A vacancy rate declined to 11.5 percent in the first quarter of 2016, a decrease of 4.2 percent (or 0.5 percentage points) from 12.0 percent the previous quarter. Year-over-year, Downtown’s Class A vacancy rate dropped 14.8 percent (or 2.0 percentage points) from 13.5 percent in the first quarter of 2015.

Overall average asking rents in Lower Manhattan rose to $57.73 per square foot this quarter, an increase of less than 1.0 percent from $57.60 per square foot at year-end 2015. Year-over-year, the submarket’s overall rates grew 2.6 percent from $56.25 per square foot in the first quarter of 2015. Class A average asking rents grew to $62.72 per square foot in the first quarter of 2016, an increase of less than 1.0 percent from $62.54 per square foot the previous quarter. Year-over-year, Downtown’s Class A rates rose 2.3 percent from $61.33 per square foot from the first quarter of 2015.

JLL is a leader in the New York tri-state commercial real estate market, with more than 2,300 of the most recognized industry experts offering brokerage, capital markets, property/facilities management, consulting, and project and development services. In 2015, the New York tri-state team completed approximately 32.6 million square feet of lease transactions; arranged investment sales, notes, debt and equity transactions valued at more than $8.2 billion; managed projects valued at $7.8 billion; and oversaw a property management, facilities management and agency leasing portfolio exceeding 141 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 $5.2 billion and gross revenue of $6.0 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 60,000.  On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $56.4 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.