Skip Ribbon Commands
Skip to main content

News release

NEW YORK

Midtown South Edges Out Midtown as Most Expensive U.S. Office Market

Class A rents in Midtown South have risen 79% since year-end 2009


NEW YORK, October 14, 2016 — Midtown South, one of the tightest office markets in the nation for the past several years, edged out Midtown in the third quarter of 2016 as the most expensive Class A office market in the country, according to JLL. The boost in average asking rental rates during the past few quarters was primarily fueled by higher-priced space at One SoHo Square and the newly constructed 860 Washington Street being added to the submarket's inventory.

Class A average asking rents in Midtown South rose to $83.19 per square foot in the third quarter of 2016, an increase of 1.9 percent from $81.67 per square foot the previous quarter. Year over year, the submarket's Class A rates rose 4.7 percent from $79.44 per square foot. Midtown South Class A rents have surged 79 percent from year-end 2009, when the submarket posted Class A rates of $46.54 per square feet.

Overall average asking rents in Midtown South rose to $71.98 per square foot this quarter, an increase of 2.2 percent from $70.43 per square foot in the second quarter. Year over year, the submarket's overall rates grew 3.1 percent from $69.80 per square foot.

"Although the current Midtown South sublease vacancy rate remains low at 1.7 percent, we will be closely monitoring for further rate increases, which may indicate potential weakness as venture capital funding tightens," said Tristan Ashby, Vice President and Director of New York research. "The submarket's sublease vacancy rate has increased six straight quarters since the beginning of 2015, marking the highest availability since the third quarter of 2012. In addition, Midtown South recorded the lowest quarter of activity since the first quarter of 2009, likely the result of few new opportunities and increased pricing."

Midtown South's overall vacancy rate rose to 7.0 percent this quarter, an increase of 4.5 percent (or 30 basis points) from 6.7 percent in the second quarter. Year over year, the submarket's overall vacancy rate rose 4.5 percent (or 30 basis points) from 6.7 percent. The Class A vacancy rate rose to 5.8 percent in the third quarter, an increase of 9.4 percent (or 50 basis points) from 5.3 percent the previous quarter. Year over year, Midtown South's Class A vacancy rate dropped 9.4 percent (or 60 percentage points) from 6.4 percent.

An additional two leases were signed in excess of $100 per square foot in Midtown South in the third quarter of the year. Winton Capital will relocate into 34,944 square feet at 315 Park Avenue South from 375 Park Avenue, and Alibaba will expand onto an additional floor at 860 Washington Street, fresh off the heels of its original lease this past quarter. Year to date, six tenants have inked high-end leases in Midtown South, surpassing the four high-end leases completed in 2015. The submarket recorded nine transactions in excess of $100 per square foot in 2014.

Manhattan's overall vacancy rate rose to 10.0 percent this quarter, an increase of 1.0 percent (or 10 basis points) from 9.9 percent in the second quarter. Year over year, the city's overall vacancy rate grew 6.4 percent (or 60 basis points) from 9.4 percent. The Class A vacancy rate rose to 11.0 percent in the third quarter, an increase of 1.9 percent (or 20 basis points) from 10.8 percent the previous quarter. Year over year, Manhattan's Class A vacancy rate rose 8.9 percent (or 90 basis points) from 10.1 percent.

Overall average asking rents in Manhattan rose to $71.25 per square foot this quarter, an increase of 1.2 percent from $70.39 per square foot in the second quarter. Year over year, the city's overall rates grew 4.5 percent from $68.17 per square foot. Class A average asking rents rose to $77.88 per square foot in the third quarter, an increase of less than 1.0 percent from $77.18 per square foot the previous quarter. Year over year, Manhattan's Class A rates rose 3.3 percent from $75.36 per square foot.

Midtown

Renewals or renewal/expansions accounted for three of the top five leases in the third quarter of 2016. Penguin Random House expanded by 188,000 square feet in a renewal and expansion that brought its total occupancy at 1745 Broadway to 603,605 square feet. In addition, law firm Dentons renewed 191,108 square feet at 1221 Avenue of the America; Morgan Stanley signed a renewal and expansion of 108,394 square feet at 399 Park Avenue; and, in the largest deal of the quarter, Bloomberg LP expanded by 204,442 square feet at 919 Third Avenue.


Other large deals include the first new transactions signed at 4 Times Square since Condé Nast's departure and Skadden, Arps, Slate, Meagher & Flom LLP's future relocation from the property. ICAP inked a lease for 82,442 square feet and Fross Zelnick Lehrman & Zissu P.C. took 41,221 square feet at the office tower. Hudson Yards landed two more tenants relocating from Midtown East. MarketAxess Holdings Inc. signed a lease to relocate to 83,000 square feet at 55 Hudson Yards from 299 Park Avenue, and Norwegian financial services group DNB ASA completed a transaction to relocate to 44,000 square feet at 30 Hudson Yards from 200 Park Avenue.

Despite moderate leasing activity, Midtown's overall vacancy rate rose to 10.5 percent this quarter, an increase of 1.9 percent (or 20 basis points) from 10.3 percent in the second quarter of 2016. Year over year, the submarket's overall vacancy rate grew 12.9 percent (or 120 basis points) from 9.3 percent. The Class A vacancy rate rose to 11.7 percent in the third quarter of 2016, an increase of 2.6 percent (or 30 basis points) from 11.4 percent the previous quarter. Year over year, Midtown's Class A vacancy rate rose 19.4 percent (or 190 basis points) from 9.8 percent.

Overall average asking rents in Midtown rose slightly to $75.71 per square foot this quarter, an increase of less than 1.0 percent from $75.02 per square foot in the second quarter. Year over year, the submarket's overall rates grew 3.9 percent from $72.90 per square foot. Class A average asking rents rose to $81.91 per square foot in the third quarter of 2016, an increase of less than 1.0 percent from $81.19 per square foot the previous quarter. Year over year, Midtown's Class A rates rose 2.0 percent from $80.31 per square foot.

Downtown

Lower Manhattan was the only submarket to post a decrease in vacancy rates in all property types in the third quarter of 2016. The decline was mainly the result of increased activity at the World Trade Center. However, since much of the leasing was from tenants leaving other Downtown locations, this suggests a temporary decrease in vacancy rates.

In the second largest Downtown lease of the quarter, Zurich American Insurance Co. signed a lease for 131,876 square feet to occupy the 52nd floor through the 54th floor at 4 World Trade Center. Global Atlantic Financial Group Ltd. and insurer Validus Holdings Ltd. also signed leases at 4 World Trade Center, taking 44,711 square feet and 24,489 square feet, respectively. All three firms are relocating operations from other Downtown locations.

The New York City Department of Finance inked the largest new lease of the year this quarter. The city agency signed for 182,750 square feet at 375 Pearl Street, a former Verizon Data Center. The tower, which is in close proximity to City Hall and other government buildings, is undergoing a large-scale upgrade that includes floor-to-ceiling windows on the upper floors of the building.

Downtown's overall vacancy rate fell to 10.7 percent this quarter, a decrease of 4.5 percent (or 50 basis points) from 11.2 percent in the second quarter. Year over year, the submarket's overall vacancy rate dropped 7.0 percent (or 80 basis points) from 11.5 percent. The Class A vacancy rate fell to 11.2 percent in the third quarter, a decrease of 2.6 percent (or 30 basis points) from 11.5 percent the previous quarter. Year over year, Downtown's Class A vacancy rate dropped 9.7 percent (or 120 basis points) from 12.4 percent.

Lower Manhattan posted a drop in Class A average asking rents in the third quarter of 2016, primarily due to the completed transactions at the World Trade Center, which took pricier space off the market. Class A average asking rents fell to $62.78 per square foot in the third quarter of 2016, a decrease of less than 1.0 percent from $63.25 per square foot the previous quarter. Year over year, Downtown's Class A rates rose 1.6 percent from $61.81 per square foot. Overall average asking rents in Lower Manhattan rose to $58.04 per square foot this quarter, an increase of less than 1.0 percent from $57.95 per square foot in the second quarter. Year over year, the submarket's overall rates grew 2.7 percent from $56.53 per square foot.

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. 

For more news, videos and research resources from JLL, please visit the firm's U.S. media center Web page. Bookmark it here: http://bit.ly/18P2tkv.

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 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 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, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $59.1 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.