Manhattan Office Market Has Uneven Recovery in Q1, Says JLL

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This week Jones Lang LaSalle (NYSE:JLL) announced that average asking rental rates rose slightly throughout much of Manhattan's office market in the first quarter of 2011. While Midtown South recorded a significant drop in vacancy rates in all property classes, the Midtown submarket posted the first increase in Class A vacancy rates in more than a year.

"Manhattan's office market finished 2010 as expected, with some improvement in the overall vacancy rate, increased leasing activity, positive absorption and little movement in asking rents," said James Delmonte, vice president and director of research for Jones Lang LaSalle's New York office. "In the first quarter of the year, however, we saw the market's ongoing recovery become uneven, with distinct movements in certain market segments and within specific types of space. While overall leasing activity was higher, large blocks of space were also returned to the market. As a result, vacancy rates increased throughout the city and absorption levels retreated into negative territory."

Midtown recorded an increase in vacancy rates for spaces in high-end buildings for the first time in more than a year. The overall vacancy rate rose to 12.4 percent in the first quarter of 2011, an increase of 1.9 percent from the overall vacancy rate of 12.2 percent in the fourth quarter of 2010. Class A vacancy rates increased to 12.8 percent this quarter, a rise of 3.8 percent from the Class A vacancy rate of 12.3 percent the previous quarter. The submarket's Class B vacancy rate remained unchanged at 11.9 percent in the first quarter of the year.

Midtown eked out the smallest percentage increase in average asking rental rates for Class A space since the second quarter of 2010. The submarket's high-end buildings posted an average asking rental rate of $66.16 per square foot in the first quarter of 2011, an increase of less than 1 percent from Class A rents of $65.81 per square foot in the fourth quarter of 2010. Class B buildings in Midtown saw rents of $46.71 per square feet this quarter, a decrease of 1.3 percent from Class B rates of $47.32 per square foot the previous quarter.

"Midtown leasing activity, which has shown improvement, was not enough to offset the amount of product returned to the market in the past few months," said Delmonte. "Overall leasing activity is being driven by consolidations, renewals and a flight to quality rather than from new demand."

Midtown South recorded decreases in vacancy rates in all property classes for the fifth straight quarter. The submarket's overall vacancy rate dropped to 8.2 percent in the first quarter of 2011, a decrease of 10 percent from the overall vacancy rate of 9.1 percent in the fourth quarter of 2010. Midtown South's Class A buildings saw vacancy rates fall to 7.9 percent this quarter, a drop of 9.3 percent from the Class A vacancy rate of 8.7 percent in the previous quarter. The submarket's Class B vacancy rate dropped to 8.3 percent in the first quarter of the year, a decrease of 9.9 percent from the Class B vacancy rate of 9.2 percent in the fourth quarter of 2010.

Midtown South posted an increase in average asking rental rates in all building classes this quarter. The submarket's top-end properties recorded rents of $47.20 per square foot in the first quarter of 2011, an increase less than 1 percent from Class A rents of $47.16 per square foot in the fourth quarter of 2010. Class B buildings saw rents of $42.16 per square feet this quarter, a rise of 1.3 percent from Class B rates of $41.63 per square foot the previous quarter.

Lower Manhattan saw vacancy rates drop in all building classes in the first quarter of the year. The submarket's overall vacancy rate fell to 12.4 percent in the first quarter of 2011, dropping 3.1 percent from the overall vacancy rate of 12.8 percent in the fourth quarter of 2010. Class A vacancy rates slipped to 10.2 percent this quarter, a decrease of 6.4 percent from the Class A vacancy rate of 10.9 percent the previous quarter. Downtown's Class B vacancy rate fell to 16.2 percent in the first quarter of 2011, a drop of less than 1 percent from the Class B vacancy rate of 16.3 percent in the fourth quarter of 2010.

"Lower Manhattan recorded some positive momentum in the first quarter, with two large renewals being signed at 2 World Financial Center," said Delmonte. "Oppenheimer Funds renewed 235,000 square feet and Commerzbank renewed 175,000 square feet of space at the trophy building."

Lower Manhattan recorded gains in average asking rental rates in all building classes in the first quarter of the year. The submarket's high-end buildings recorded Class A rents of $41.86 per square foot in the first quarter of 2011, an increase of 2.2 percent from the Class A rate of $40.95 in the fourth quarter of 2010. Downtown's Class B buildings posted average asking rental rates of $35.04 per square foot this quarter, an increase of less than 1 percent from the Class B rate of $34.91 per square foot the previous quarter.

Jones Lang LaSalle is a leader in the New York Tri-state commercial real estate market, with more than 1,700 of the most recognized industry experts offering brokerage, capital markets, facilities management, consulting, and project and development services. In 2010, the New York tri-state team completed approximately 17 million square feet in lease transactions, managed projects valued at more than $5.8 billion, and oversaw a property and facilities management portfolio of 83.5 million square feet.

 

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