Manhattan Reports Rising Office Vacancy Rates, First Time in a Year

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According to JLL, despite strong leasing activity in the first quarter of 2015, vacancy rates increased throughout Manhattan. The city witnessed negative absorption for the first time since the first quarter of 2014 as a number of large blocks of space were put back on the market.

Manhattan's overall vacancy rate rose to 10.0 percent this quarter, an increase of 5.3 percent (or 0.5 percentage points) from 9.5 percent at year-end 2014. The city's overall vacancy rate remained 9.9 percent (or 1.1 percentage points) below the first quarter of 2014's 11.1 percent, however. New York's Class A vacancy rate rose to 11.0 percent in the first quarter of 2015, an increase of 4.8 percent (or 0.5 percentage points) from 10.5 percent the previous quarter. Year-over-year, the city's Class A vacancy rate declined 11.3 percent (or 1.4 percentage points) from 12.4 percent in the first quarter of 2014.

"While this past year was noteworthy for the robust activity seen throughout Midtown South and Lower Manhattan, Midtown claimed most of the volume in the first quarter of the year," said Tristan Ashby, Director of New York research. "FIRE industries -- ffinance, insurance and real estate -- were ascendant in Midtown this quarter, with major commitments made by MetLife, Fiduciary Trust and Fortress Investments. The outlook for the financial services sector, which has historically been a key driver in terms of the city's Class A office leasing activity, has seen marked improvement."

Overall average asking rents in New York rose to $66.74 per square foot this quarter, an increase of 2.3 percent from $65.25 per square foot at year-end 2014. The city's overall rates grew 3.9 percent over the past 12 months from $64.26 per square foot in the first quarter of 2014. Class A average asking rents grew 3.1 percent to $73.90 per square foot from $71.68 per square foot in December 2014. Manhattan's Class A rates rose 4.5 percent over the past 12 months from $70.72 per square foot in the first quarter of 2014.

Midtown

Tenants within the city's FIRE sector fueled a significant rise in activity in the first quarter of 2015, accounting for 11 of the top 20 Midtown leases compared with just five of the top 20 during all of 2014. The submarket recorded eight large-block leases, those totalling 100,000 square feet or greater, in the first quarter compared with just five at the same time this past year. All but three were located on the East Side, reversing, at least temporarily, what had been a trend of westward migration.

Publicis Groupe, part of the TAMI sector -- technology, advertising, media and information services -- however, signed the largest lease of the quarter, taking 506,009 square feet at 1675 Broadway. MetLife posted the second largest lease, expanding at its namesake tower at 200 Park Avenue. The expansion was driven by consolidation from other New York locations including 1095 Avenue of the Americas, 277 Park Avenue and One Metlife Plaza in Long Island City.

Despite the increase in larger leases, Midtown's overall vacancy rate grew to 10.0 percent this quarter, an increase of 3.1 percent (or 0.3 percentage points) from 9.7 percent at year-end 2014. This was largely due to the return of large blocks at 1271 Avenue of the Americas and 75 Rockefeller Plaza, and space added in buildings under construction at 7 Bryant Park and 10 Hudson Yards. The submarket's overall vacancy rate, however, fell 10.7 percent year-over-year from 11.2 percent in the first quarter of 2014. The Class A vacancy rate rose to 10.9 percent in the first quarter of 2015, an increase of 1.9 percent (or 0.2 percentage points) from 10.7 percent the previous quarter. Midtown's Class A vacancy rate fell 9.9 percent (or 2.2 percentage points) from 12.1 percent in March of 2014.

Overall average asking rents in Midtown rose to $71.60 per square foot this quarter, an increase of 1.8 percent from $70.31 per square foot at year-end 2014. The submarket's overall rates grew 3.8 percent during the past 12 months from $68.99 per square foot in the first quarter of 2014. Class A average asking rents rose to $78.42 per square foot in the first quarter of 2015, an increase of 1.7 percent from $77.11 per square foot in the previous quarter. Midtown's Class A rates rose 2.8 percent from $76.30 per square foot a year ago.

Midtown South

After benefiting from record leasing activity in 2014, Midtown South witnessed a slowing of activity in the first quarter of 2015. Just one lease in excess of 100,000 square feet was reported this quarter compared with four in the first quarter of 2014. Subleases drove leasing velocity, accounting for 52.9 percent of total activity by square feet compared with 2.1 percent in the first quarter of 2014. In the largest lease of the quarter, WebMD signed a 152,670-square-foot sublease at 395 Hudson Street. In addition, TED Conferences subleased 47,436 square feet at 330 Hudson Street.

Midtown South's overall vacancy rate dropped to 6.1 percent this quarter, a decrease of 11.6 percent (or 0.8 percentage points) from 6.9 percent at year-end 2014. The submarket's overall vacancy rate fell 12.9 percent (or 0.9 percentage points) during the past 12 months from 7.0 percent in the first quarter of 2014. The Class A vacancy rate rose to 6.1 percent in the first quarter of 2015, an increase of 56.4 percent (or 2.2 percentage points) from 3.9 percent in the previous quarter. Midtown South's Class A rate grew 11.6 percent (or 0.8 percentage points) from 6.9 percent in the first quarter of 2014.

Average asking rental rates continued to grow in Midtown South, with the submarket's Class A rents eclipsing rates for similar Midtown buildings in the first quarter of 2014. The addition of higher-price space to the supply in Hudson Square and SoHo helped drive the increase in rates.

Overall average asking rents in Midtown South rose to $65.39 per square foot this quarter, an increase of 7.6 percent from $60.78 per square foot at year-end 2014. Year-over-year, the submarket's overall rates grew 12.3 percent from $58.23 per square foot in the first quarter of 2014. Class A average asking rents rose to $79.97 per square foot in the first quarter of 2015, an increase of 12.4 percent from $71.15 per square foot in the previous quarter. Midtown South's Class A rates rose 7.3 percent from $74.56 per square foot a year ago.

Downtown

Like Midtown South, Lower Manhattan's office market saw a slowdown in deal volume in the first quarter of the year. Downtown Class A vacancy rates rose as two large blocks of trophy-quality space at 28 Liberty Street and 300 Vesey Street were delivered to the market. WeWork signed the only large Downtown lease of the quarter, committing to 234,879 square feet at 85 Broad Street. Namely Inc. signed the second-largest lease and will relocate from Midtown to a 41,982-square-foot suite at 195 Broadway.

Lower Manhattan's overall vacancy rate grew to 12.5 percent this quarter, an increase of 16.8 percent (or 1.8 percentage points) from 10.7 percent at year-end 2014. This total remained 5.3 percent (or 0.7 percentage points) below the 13.2 percent vacancy of a year ago at this time, however. The Class A vacancy rate rose to 13.5 percent in the first quarter of 2014, an increase of 16.4 percent (or 1.9 percentage points) from 11.6 percent the previous quarter. Year-over-year, Downtown's Class A vacancy rate fell 8.8 percent (or 1.3 percentage points) from 14.8 percent in March of 2014.

Landlords remained bullish on Lower Manhattan in the first quarter of the year, with many Class A (and Class B) properties posting an increase in average asking rental rates. Owners appear to be hedging on the continuation of the momentum created by the strong activity since 2013. Overall average asking rents Downtown rose 3.3 percent to $56.25 per square foot this quarter from $54.43 per square foot at year-end 2014. The submarket's overall rates grew 5.4 percent from $53.39 per square foot in the first quarter of 2014. Class A average asking rents rose to $61.33 per square foot in the first quarter of 2015, an increase of 4.7 percent from $58.60 per square foot in the previous quarter. Lower Manhattan's Class A rates rose 7.4 percent from $57.10 per square foot in the first quarter of last year.