NEW YORK CITY-A mix of tenants seeking value-priced product and those looking for high-end office space helped drive New York's average asking rental rates up and vacancy rates down in the third quarter of 2013, according to a new report from Jones Lang LaSalle.
In Midtown, Class A space—where average asking rents have remained in the mid-$70s per square foot for most of the year—represents the weakest segment of the submarket. By contrast, nearly 40% of Midtown leasing this year has been in office product posting asking rents of less than $60 per square foot. But there has been almost as much activity at the top end of the market, with nearly 30% of deal volume coming from trophy spaces posting asking rents above $80 per square foot.
“New York's office market is performing well at the edges,” says Tristan Ashby, director of research for JLL's New York tri-state office. “The bulk of Midtown deal volume in the third quarter was for spaces with average asking rental rates south of $60 per square foot or north of $80 per square foot.”
New York's overall vacancy rate fell to 11.8% this quarter from 12.1% at midyear. In the past year, the overall vacancy rate increased to 11.3 % from 10.6 % in the third quarter of 2012. Meanwhile, New York saw overall average asking rents rise to $61.11 per square foot this quarter, an increase of less than 1% from $60.66 per square foot at mid-year 2013. In the past year, overall rents increased 4.6% from $58.40 per square foot in the third quarter of 2012.
The city's Class A rents grew to $68.13 per square foot in the third quarter, an increase of less than 1.0 % from $67.81 per square foot the previous quarter. In the third quarter of 2012, Class A rents rose 2.8 % from $66.25 per square foot.
But large Midtown deals were down by 50% in the third quarter, and transactions claiming three of the five top leases were renewals. The submarket recorded just four transactions larger than 100,000 square feet this quarter, compared with eight big deals in the previous quarter. On the positive side, the area continues to see gains in the number of high-price deals. Over the past nine months, Midtown recorded 46 leases with starting rents at $100 per square foot or higher, compared with 28 at this point in 2012.
Smaller tenants drove most Midtown South activity. Five leases greater than 50,000 square feet were signed in Midtown South, down from seven in the previous quarter.
And the Chelsea market's strong performance has led many landlords to renovate and remarket their space at higher rents. Approximately 200,000 square feet was put on the market between June and September. The biggest block of space came after the General Services Administration vacated about 164,000 square feet at 601 W. 26th Street. Another 25,000 square feet opened up when Interpublic left 28 W. 23rd Street.
Midtown South's overall vacancy rate rose to 8.5%, an increase of 4.9% from midyear. Overall average asking rental rates in Midtown South rose to $57.52 per square foot this quarter, an increase of 1.4% from overall rates of $56.73 per square foot at midyear 2013.
For the first time since the third quarter of 2011, Lower Manhattan saw a drop in vacancy rates for all of the submarket's office property types. Four of the top 10 transactions signed in the third quarter of 2013 occurred Downtown, with the New York City Health and Hospitals Corp., Scotiabank, Droga5 and WeWork all inking leases of 80,000 square feet or more. The city's creative industries — led by advertising and technology firms — accounted for 28.4% of all Downtown leasing this quarter, while the submarket's traditional office tenants — legal and financial services — were responsible for 17.9% of total leasing volume.
As a result, Downtown's overall vacancy rate fell to 13.7%, a 5.5% decrease from 14.5% at midyear. Overall average asking rental rates Downtown rose to $49.91 per square foot this quarter, an increase of less than 1% from $49.60 per square foot at midyear 2013.
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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.
