Downtown Manhattan Enjoys Significant Surge of Office Leasing in Early 2017

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Downtown records 2.3 million square feet in transactions, highest quarterly volume in 2 years

According to JLL, lower Manhattan recorded more than 2.3 million square feet in leasing transactions in the first quarter of 2017. More transactions were completed Downtown in the first quarter of the year than in any quarter during the past two years. Additionally, deal volume was 44 percent higher than the quarterly average the submarket has posted since 2007.

"In a reversal from this past year, Downtown led activity with five of the largest leases of the quarter, including Spotify's relocation," said Tristan Ashby, Vice President and Director of New York research. "Newer, high-quality space west of Broadway and good-value space to the east drove activity in Lower Manhattan. Leasing activity increased throughout New York City following the Presidential election and remained strong through the first two months of the year. Deal volume was slower in March but leases are still filtering through."

Five of the top 10 leases for the quarter in Manhattan took place in Downtown, including the largest new deal of the quarter -- Spotify's relocation to 4 World Trade Center. The digital music streaming service signed on for 378,000 square feet in a move from 620 Avenue of the Americas.

The other four large deals completed in Lower Manhattan in the first quarter of 2017 include the Royal Bank of Canada renewing 402,000 square feet at 200 Vesey Street, the New York State Attorney General's office leasing 345,000 square feet at 28 Liberty Street, Aon PLC taking 203,000 square feet at 1 Liberty Plaza and Tullett Prebon PLC signing for 128,000 square feet at 200 Vesey Street.

The boost in deal volume drove down Lower Manhattan vacancy rates. Going forward, 3 World Trade Center will be added to the submarket's inventory during the summer. That adjustment will add more than 1.8 million square feet of available space to the market, likely increasing both the vacancy rate and asking rent for Downtown.

Downtown's overall vacancy rate dropped to 10.4 percent this quarter, a decrease of 10.3 percent (or 90 basis points) from 11.6 percent in the fourth quarter of 2016. Year over year, the submarket's overall vacancy rate fell 6.3 percent (or 70 basis points) from 11.1 percent in the first quarter of 2016. The Class A vacancy rate dropped to 9.7 percent in the first quarter of the year, a decrease of 17.8 percent (or 190 basis points) from 11.8 percent the previous quarter. Year over year, Downtown's Class A vacancy rate dropped 15.7 percent (or 180 basis points) from 11.5 percent in the first quarter of the year.

Overall average asking rents in Lower Manhattan fell to $56.45 per square foot this quarter, a decrease of 2.1 percent from $57.67 per square foot in the fourth quarter of 2016. Year over year, the submarket's overall rates dropped 2.2 percent from $57.73 per square foot in the first quarter of 2016. Class A average asking rents fell to $60.79 per square foot in the first quarter of the year, a decrease of 3.0 percent from $62.68 per square foot the previous quarter. Year over year, Downtown's Class A rates fell 3.1 percent from $62.72 per square foot in the first quarter of 2016.

A surge in leasing activity following the November 2017 election pushed down vacancy rates for New York City office space. Overall vacancy rates dropped slightly to 10.3 percent this quarter, a decrease of 1.0 percent (or 10 basis points) from 10.4 percent in the fourth quarter of 2016. Year over year, the city's overall vacancy rate grew 3.0 percent (or 30 basis points) from 10.0 percent in the first quarter of 2016. The Class A vacancy rate fell to 10.9 percent in the first quarter of the year, a decrease of 2.7 percent (or 30 basis points) from 11.2 percent the previous quarter. Year over year, Manhattan's Class A vacancy rate fell less than 1.0 percent (or 10 basis points) from 11.0 percent in the first quarter of 2016.

Overall average asking rents in Manhattan rose to $71.54 per square foot this quarter, an increase of 1.9 percent from $70.22 per square foot in the fourth quarter of 2016. Year over year, the city's overall rates increased 1.9 percent from $70.18 per square foot in the first quarter of 2016. Class A average asking rents rose to $78.48 per square foot in the first quarter of the year, an increase of 1.9 percent from $77.04 per square foot the previous quarter. Year over year, Manhattan's Class A rates rose 2.1 percent from $76.88 per square foot in the first quarter of 2016.

Midtown

Midtown posted the largest transaction in the city year-to-date with Fox/NewsCorp's announcement that it would remain at 1211 Avenue of the Americas following a renewal/expansion deal that totaled more than 1.2 million square feet. Other Midtown deals included PVH Corp. inking the largest new lease by taking 196,792 square feet at 285 Madison Avenue for its Tommy Hilfiger brand; Endurance Reinsurance Corp. signing for 95,554 square feet at 1221 Avenue of the Americas; RSM US LLP leasing 95,000 square feet at 4 Times Square; and WeWork continuing its growth strategy with a deal for 64,390 square feet at 130 West 42nd Street.

Midtown's overall vacancy rate rose slightly to 10.7 percent this quarter, an increase of less than 1.0 percent (or 10 basis points) from 10.6 percent in the fourth quarter of 2016. Year over year, the submarket's overall vacancy rate grew 2.9 percent (or 30 basis points) from 10.4 percent in the first quarter of 2016. The Class A vacancy rate fell to 11.5 percent in the first quarter of the year, a decrease of 2.5 percent (or 30 basis points) from 11.8 percent the previous quarter. Year over year, Midtown's Class A vacancy rate fell less than 1.0 percent (or 10 basis points) from 11.6 percent in the first quarter of 2016.

Overall average asking rents in Midtown rose to $75.78 per square foot this quarter, an increase of 1.0 percent from $75.04 per square foot in the fourth quarter of 2016. Year over year, the submarket's overall rates grew 1.1 percent from $74.98 per square foot in the first quarter of 2016. Class A average asking rents rose to $82.38 per square foot in the first quarter of the year, an increase of 1.4 percent from $81.22 per square foot the previous quarter. Year-over-year, Midtown's Class A rates rose 1.6 percent from $81.09 per square foot in the first quarter of 2016.

Midtown South

Overall and Class A vacancy rates in Midtown South increased during the first quarter of 2017 due to new space being added to the submarket's inventory. New product included 413 West 14th Street, 412 West 15th Street, 61 Ninth Avenue and 300 Lafayette Street., Large sublease opportunities became available at 601 West 26th Street and 75 Varick Street.

With a cooling in venture capital funding, non-TAMI firms took the top leases in Midtown South this quarter. Capital One Financial Corp. signed a sublease at 11 West 19th Street for 78,000 square feet in Chelsea; insurance firm Argo Group US, Inc. leased 45,495 square feet at the newly renovated 413 West 14th Street; and Bumbleandbumble Products LLC, a make-up company and division of Estee Lauder, committed to 41,210 square feet at 412 West 14th Street.

Midtown South's overall vacancy rate rose to 8.4 percent this quarter, an increase of 12.0 percent (or 90 basis points) from 7.5 percent in the fourth quarter of 2016. Year over year, the submarket's overall vacancy rate rose 21.7 percent (or 150 basis points) from 6.9 percent in the first quarter of 2016. The Class A vacancy rate rose to 9.5 percent in the first quarter of the year, an increase of 58.3 percent (or 350 basis points) from 6.0 percent the previous quarter. Year over year, Midtown South's Class A vacancy rate increased 61.0 percent (or 360 basis points) from 5.9 percent in the first quarter of 2016.

A combination of strong demand and new or substantially renovated inventory has driven Midtown South rents to an all-time high. Overall average asking rents in Midtown South rose to $76.65 per square foot this quarter, an increase of 10.9 percent from $69.12 per square foot in the fourth quarter of 2016. Year over year, the submarket's overall rates grew 11.7 percent from $68.61 per square foot in the first quarter of 2016. Class A average asking rents in Midtown South rose to $83.40 per square foot in the first quarter of the year, an increase of 3.8 percent from $80.32 per square foot the previous quarter. Year over year, the submarket's Class A rates rose 4.8 percent from $79.59 per square foot in the first quarter of 2016.