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

New York, NY Despite a slowdown in leasing activity in the third quarter of 2015, Midtown class A vacancy rates dropped below 10% 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% 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. “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 s/f. Professional social media network LinkedIn committed to an expansion of 120,000 s/f at 350 Fifth Ave., bringing its total footprint at the building to 280,000 s/f. 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 s/f year to date, compared with 18 in the first three quarters of 2014. Midtown’s overall vacancy rate fell to 9.3% this quarter, a decrease of 3.1% (or .3% age points) from 9.6%  at midyear 2015. Year-over-year, the submarket’s overall vacancy rate dropped 7.9% (or .8% age points) from 10.1% in the third quarter of 2014. The class A vacancy rate declined 4.9% (or .5% age points) to 9.8% in the third quarter of 2015 from 10.3% the previous quarter. Year-over-year, Midtown’s class A vacancy rate dropped 10.9% (or 1.2% age points) from 11.0% in the third quarter of 2014. Overall average asking rents in Midtown rose to $72.90 per s/f this quarter, an increase of 1% from $71.21 per s/f at midyear 2015. Year-over-year, the submarket’s overall rates grew 3.7% from $70.29 per s/f in the third quarter of 2014. class A average asking rents rose to $80.31 per s/f in the third quarter of 2015, an increase of 1.2% from $79.33 per s/f in the previous quarter. Year-over-year, Midtown’s class A rates rose 4.1% from $77.13 per s/f 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 s/f at Dock 72 in the Brooklyn Navy Yard, and Macy’s inked a lease for 150,000 s/f at The Factory in Long Island City. Manhattan’s overall vacancy rate fell to 9.4% this quarter, a decrease of 3.1% (or .3% age points) from 9.7% at midyear 2015. Year-over-year, the city’s overall vacancy rate dropped 3.1% (or .3% age points) from 9.7%  in the third quarter of 2014. The class A vacancy rate declined 4.7% (or .5% age points) to 10.1%  in the third quarter of 2015 from 10.6% the previous quarter. Year-over-year, Manhattan’s class A vacancy rate dropped 4.7%  (or .5% age points) from 10.6% in the third quarter of 2014. Overall average asking rents in New York rose to $68.17 per s/f this quarter, an increase of less than 1%  from $67.63 per s/f at midyear 2015. Year-over-year, the city’s overall rates grew 5% from $64.91 per s/f in the third quarter of 2014. class A average asking rents rose to $75.36 per s/f in the third quarter of 2015, an increase of less than 1% from $74.73 per s/f in the previous quarter. Year-over-year, Manhattan’s class A rates rose 5.2%  from $71.66 per s/f in the third quarter of 2014. Midtown South Midtown South posted two deals larger than 50,000 s/f in the third quarter of 2015. Horizon Media accounted for one of them while expanding twice at 75 Varick St., taking 68,404 s/f currently occupied by Metropolitan College of New York on the 12th floor and another 34,412 s/f on the 10th floor. Online retailer One Kings Lane inked another large deal, a short-term lease for 51,576 s/f at 315 Hudson St. In addition, William Morris Endeavor expanded its footprint at 11 Madison Ave. by 33,000 s/f - to a total of 104,000 s/f - at rents reportedly higher than the current market rate. SL Green Realty Corp. recently closed on the purchase of 11 Madison Ave. for $2.6 billion, representing the largest single-building transaction in New York history. Midtown South’s overall vacancy rate fell to 6.7% this quarter, a decrease of 6.9% (or .5% age points) from 7.2% at midyear 2015. Year-over-year, the submarket’s overall vacancy rate remained unchanged at 6.7% . The class A vacancy rate declined 5.9% (or .4% age points) to 6.4% in the third quarter of 2015 from 6.8%  the previous quarter. Year-over-year, Midtown South’s class A vacancy rate increased 56.1% (or 2.3% age points) from 4.1% 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 s/f, 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 s/f this quarter, an increase of 2.6%  from $68.03 per s/f at midyear 2015. Year-over-year, the submarket’s overall rates grew 18.6% from $58.83 per s/f in the third quarter of 2014. class A average asking rents rose to $79.44 per s/f in the third quarter of 2015, an increase of less than 1% from $79.24 per s/f in the previous quarter. Year-over-year, Midtown South’s class A rates rose 12% from $70.94 per s/f 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 s/f relocation from 1 Liberty Plaza and 545 Washington Blvd. in Jersey City to 300 Vesey St., also known as Brookfield Place. Additional noteworthy transactions include the NYC Department of City Planning taking 115,011 s/f at 120 Broadway, Ironshore signing for 101,958 s/f at 28 Liberty Street, and Gucci moving from Midtown into 83,964 s/f 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% age point between the first quarter and the third quarter. Lower Manhattan’s overall vacancy rate fell to 11.5%  this quarter, a decrease of 3.4%  (or 0.4% age points) from 11.9%  at midyear 2015. Year-over-year, the submarket’s overall vacancy rate rose 8.5%  (or 0.9% age points) from 10.6%  in the third quarter of 2014. The class A vacancy rate declined 5.3%  (or 0.7% age points) to 12.4%  in the third quarter of 2015 from 13.1%  the previous quarter. Year-over-year, Downtown’s class A vacancy rate grew 10.7%  (or 1.2% age points) from 11.2%  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 s/f. 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 s/f this quarter, a decrease of less than 1.0%  from $57.05 per s/f at midyear 2015. Year-over-year, the submarket’s overall rates grew 6.4%  from $53.12 per s/f in the third quarter of 2014. class A average asking rents dropped to $61.81 per s/f in the third quarter of 2015, a decrease of less than 1.0%  from $62.16 per s/f in the previous quarter. Year-over-year, Downtown’s class A rates rose 7.2%  from $57.66 per s/f in the third quarter of 2014.