NEW YORK CITY-By yet another indicator, Downtown was the winning submarket last quarter in the office space game. The area was home to four of the 10 largest leases signed around town and the only submarket that posted a drop in vacancy rates, according to an announcement by Jones Lang LaSalle, made on Friday, of Q1 results in Manhattan.
Lower Manhattan posted large drops in Class A space and overall vacancy rates in the first quarter, the report states. Elsewhere around town, vacancy rates rose—with Midtown South posting a double-digit spike—while Manhattan rents performed differently market-to-market.
The victory for the city's lower reaches may be short-won though, JLL says. The upcoming new inventory likely will take its toll on the area. “We remain bullish on Lower Manhattan, and believe the submarket remains a value play as demographics, the industry sectors occupying space Downtown, and commuting patterns of area workers continue to evolve,” says Peter Riguardi, president of JLL's New York tri-state office, in the announcement. “While Downtown was the only submarket to record a drop in vacancy rates this quarter, that will not last. New space to be added to the market at One World Trade Center and 180 Maiden Lane will push rates higher this spring.”
In Q1 though, the overall vacancy rate fell to 11.8%, a 4.8% drop from 12.4% the previous quarter. Class A rents expanded to $52.44 per square foot in the first quarter of 2013, an increase of 2.2% from Class A rates of $51.31 per square foot the previous quarter.
Meanwhile, companies may be pushing back from high asking rents in Midtown South. Large blocks of space in Hudson Square, and smaller blocks in Chelsea, boosting the submarket's overall vacancy rate rose to 8.6% in the first, an increase of 19.5% from the overall vacancy rate of 7.2% in last year's fourth quarter. A rare large block became available at 395 Hudson Street on a sublease basis, which drove the Hudson Square vacancy rate from 8.2 percent at year-end 2012 to 10.6% at the end of the first quarter of 2013.
Midtown South actually recorded a slight drop in rents as space became available in the less-expensive Hudson Square submarket. Class A rents fell to $69.33 per square foot in the first quarter of 2013, a drop of 1.2 percent from $70.15 per square foot the previous quarter.
Midtown posted a slight increase in overall and Class A vacancy rates. However, the JLL report states, the Penn Station/Garment District area has become one of the most active spots in Manhattan due to tenants moving north from Midtown South. Even though the Penn Station/Garment District represents just 16% of Midtown's office inventory, it claimed one-third of all Midtown leases in the first quarter.
Midtown's overall vacancy rate rose to 12.1% in the first quarter, an increase of 3% from the overall vacancy rate of 11.7% the previous quarter, JLL reports. The boost in vacancy rates was primarily the result of the return of several large blocks of office space along Sixth Avenue to the market. The Class A vacancy rate rose to 12.9 percent this quarter, according to JLL, an increase of 5.3 percent (from the Class A vacancy rate of 12.3 percent in the fourth quarter of 2012.
Midtown posted just a 1% increase in rents during the first quarter, to $72.88 per square foot, the report says. Rents in the fourth quarter of 2012 came in at $72.78 per square foot.
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
