NEW YORK CITY—Midtown leasing activity outperformed the rest of the New York office market in 2015—claiming nine of the top 10 leases—despite recording fewer large-block transactions year-over-year, according to JLL. There were 27 leases of 100,000 square feet or greater in Midtown last year, compared to 33 in 2014.
"The Midtown Trophy Index, a group of many of New York's most exclusive office buildings, has outperformed the rest of the submarket," says Tristan Ashby, VP and director of New York research. "Average asking rents for Midtown trophy properties increased 6.5% in 2015 to $99.43 per square foot. Since the market bottom in 2010, Midtown trophy asking rents have recorded some of the highest growth rates in Manhattan at 38.9%."
Average asking rents in Midtown rose slightly to $73.19 per square foot in Q4, an increase of less than 1% from $72.90 per square foot in the third quarter. Year-over-year, the submarket's rates grew 4.1% from $70.31 per square foot.
Midtown's vacancy rate rose to 9.9% in the fourth quarter, an increase of 6.5% from 9.3% in the third quarter of 2015. Year-over-year, the submarket's vacancy rate grew 2.1% from 9.7%.
Fewer large-block leases resulted in a 25% drop in 2015's leasing activity year-over year across Manhattan. The number of large-block transactions—spanning 100,000 square feet or more—dropped 32% in 2015, with 36 large transactions signed compared with 53 in 2014, according to JLL.
Large-block renewals plummeted by 65%, with just eight large renewals in 2015 compared with 23 the prior year. The market was strong enough for building owners to push for rent increases. Rents were up 5.3% but concessions rose in tandem.
Fueled by slow leasing activity in the final quarter, Manhattan's vacancy rate for 2015 rose to 9.6%, an increase of 2.1% from 9.4% in the third quarter. Year-over-year, the borough's vacancy rate grew 1.1% from 9.5% in the fourth quarter of 2014.
Average asking rents in Manhattan rose to $68.73 per square foot in the fourth quarter, an increase of less than 1% from $68.17 per square foot in the third quarter. Year-over-year, Manhattan's rates grew 5.3% from $65.25 per square foot in the fourth quarter of 2014.
Strong demand, particularly from Manhattan's creative sector, depleted the supply of 25,000-square-foot or larger blocks of space in Midtown South. Year-to-date leasing activity, however, decreased 51.8% this year compared with 2014.
Midtown South's vacancy rate fell to 6.3% this quarter, a decrease of 6% from 6.7% in the third quarter of 2015. Year-over-year, the submarket's vacancy rate dropped 8.7% from 6.9% in the fourth quarter of 2014.
After three consecutive years of double-digit annual rent growth, average starting rents for new deals in Midtown South increased 4.7% to $68.86 per square foot in 2015. This represents a 77.2% increase in the submarket's average starting rents since it reached a post-recession low in 2010.
Average asking rents in Midtown South fell to $68.06 per square foot this quarter, a decrease of 2.5 % from $69.80 per square foot in the third quarter of 2015. Year-over-year, the submarket's overall rates grew 12.0 % from $60.78 per square foot in the fourth quarter of 2014.
Leasing activity Downtown dropped 50% in 2015 compared with 2014. Higher rent growth for Downtown product compared to Manhattan's other submarkets may have contributed to the slowdown. The discount between asking rents in Downtown and Midtown fell to approximately $15 per square foot in 2015, among the slimmest margins recorded in the past decade.
Lower Manhattan's vacancy rate fell to 11.1% in the fourth quarter, a decrease of 3.5% from 11.5% in the third quarter. Year-over-year, the submarket's vacancy rate rose 3.7% from 10.7%.
Average asking rents in Lower Manhattan rose to $57.60 per square foot in Q4, an increase of 1.9% from $56.53 per square foot in the third quarter of 2015. Year-over-year, the submarket's overall rates grew 5.8% from $54.43 per square foot in the fourth quarter of 2014.
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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.
