Lower Manhattan Market Enjoys Biggest Percentage Office Rent Increase in Q3

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According to Jones Lang LaSalle, overall average asking rental rents increased slightly for commercial office space throughout Manhattan in the third quarter of 2012. Midtown South was the only submarket that boasted both growth in average asking rental rates and improvement in vacancy rates. Downtown saw a big surge in rates this quarter as new high-end product came to market at the World Trade Center.
 
Tenants also continued to sign deals for increasingly rare blocks of Midtown South office space, pushing vacancy rates down even further this quarter. The submarket's overall vacancy rate fell to 7.0 percent in the third quarter of 2012, a drop of 7.9 percent from the overall vacancy rate of 7.6 percent the previous quarter. The Class A vacancy rate plummeted to 9.6 percent this quarter, a decrease of 18.6 percent from the Class A vacancy rate of 11.8 percent at midyear 2012. The submarket's Class B vacancy rate dropped to 6.2 percent this quarter, a decrease of 1.6 percent from the Class B vacancy rate of 6.3 percent in the second quarter of the year.

Midtown South rents rose higher this quarter, fueled by strong interest among space users in the submarket's few remaining available spaces. Class A rents rose to $69.74 per square foot in the third quarter of 2012, a boost of 2.6 percent from Class A rates of $67.99 per square foot the previous quarter. The submarket's Class B rents grew to $47.37 per square foot this quarter, an increase of 1.7 percent from Class B rates of $46.57 per square foot at midyear 2012.

"Market data still remains flat, but confidence in New York's office sector continues to increase," said Peter Riguardi, president of Jones Lang LaSalle's New York office. "We see evidence of that in our pipeline of new transactions and in the increased number of showings in our agency business. There are a number of large deals circling the market that could provide a boost to fourth-quarter results."

The city's overall vacancy rate rose slightly to 10.6 percent in the third quarter of 2012, an increase of 1.0 percent from the overall vacancy rate of 10.5 percent the previous quarter. The Class A vacancy rate rose to 11.2 percent this quarter, an increase of 1.8 percent from the Class A vacancy rate of 11.0 percent at midyear 2012. The Class B vacancy rate fell to 9.7 percent this quarter, a drop of 3.0 percent from the Class B vacancy rate of 10.0 percent in the second quarter of the year.

Average asking rental rates continued to inch up throughout Manhattan in the third quarter of the year. Class A rents rose to $66.25 per square foot in the third quarter of 2012, an increase of 1 percent from Class A rates of $65.62 per square foot the previous quarter. The city's Class B rents grew to $46.00 per square feet this quarter, a boost of slightly less than 1 percent from Class B rates of $45.61 per square foot at midyear 2012.

Midtown's overall vacancy rate barely changed in the third quarter of 2012. The submarket's overall vacancy rate rose slightly to 11.6 percent in the third quarter of 2012, an increase of less than 1 percent from the overall vacancy rate of 11.5 percent the previous quarter. The Class A vacancy rate rose to 11.6 percent this quarter, an increase of 1.8 percent from the Class A vacancy rate of 11.4 percent at midyear 2012. The submarket's Class B vacancy rate fell to 11.5 percent this quarter, a drop of 2.5 percent from the Class B vacancy rate of 11.8 percent in the second quarter of the year.

"After a spirited rise in rents for Midtown's top-end office spaces in 2011, prices have been level for most this year," said Riguardi. "Still, with a direct asking rent of $104.85 per square foot, the Plaza District remains the nation's top and largest enclave of trophy-quality buildings."

Midtown posted a minor increase in average asking rental rates for all building classes in the third quarter of the year. Class A rents rose to $72.70 per square foot this quarter, an increase of less than 1 percent from Class A rates of $72.28 per square foot in the second quarter of 2012. Midtown's Class B rents grew slightly to $49.05 per square foot this quarter, an increase of less than 1 percent from Class B rates of $48.85 at midyear 2012.

Lower Manhattan's overall vacancy rate rose to 10.1 percent in the third quarter of 2012, an increase of 3.1 percent from the overall vacancy rate of 9.8 percent the previous quarter. The Class A vacancy rate increased to 10.5 percent this quarter, a boost of 7.1 percent from the Class A vacancy rate of 9.8 percent at midyear 2012. Downtown's Class B vacancy rate fell to 9.4 percent this quarter, a drop of 3.1 percent from the Class B vacancy rate of 9.7 percent in the second quarter of the year.

"Rents in Lower Manhattan will continue to increase for at least the next 12 months as new tower-quality office space is added at the World Trade Center and at the World Financial Center," said Riguardi. "At the same time, excess space at both properties could driving vacancy rates above 15 percent by year-end."

Lower Manhattan recorded the highest percentage gains in average asking rental rates for all office building classes in the third quarter of 2012. Class A rents expanded to $47.35 per square foot this quarter, an increase of 4.0 percent from Class A rates of $45.51 per square foot in second quarter of the year. Downtown's Class B rents rose to $35.32 per square foot this quarter, a boost of 1.6 percent from Class B rates of $34.78 per square foot at midyear 2012.