Class B Demand Fuels Office Rent Hikes

Grovo and Dropbox signed lease deals at 50 West 23rd St. in the first quarter.

NEW YORK CITY—A verage asking rents throughout New York City edged higher in the first quarter of this year due in part to the strong demand for less costly Class B space, a ccording to a report released Tuesday by  JLL . Meanwhile, a  number of large blocks of space returned to the market helped push Class A office availabilities in New York City higher, t he brokerage firm also states. JLL reports that overall average asking rents in New York rose to $70.18-per-square foot in the first quarter, an increase of 2.1% from $68.73-per-square-foot at year-end 2015. Year-over-year, the city’s overall rates grew 5.2% from $66.74-per-square-foot in the first quarter of 2015. Class A average asking rents rose to $76.88-per-square-foot in the first quarter of 2016, an increase of 1.5% from $75.71-per-square-foot the previous quarter. Year-over-year, Manhattan’s Class A rates rose 4.0% from $73.90-per-square-foot in the first quarter of 2015. Manhattan’s overall vacancy rate rose to 10% in the first quarter of this year, a slight increase from 9.6% at the end of 2015. Year-over-year, the city’s overall vacancy rate remained unchanged. The Class A vacancy rate grew to 11%  in the first quarter of 2016, an increase of 0.7 percentage points from 10.3% in the fourth quarter of 2015 . Year-over-year, Manhattan’s Class A vacancy rate also remained unchanged. “Despite some caution in the tech sector, we’re still seeing activity both from marquee names and start-ups,” says Tristan Ashby , VP and director of New York research for JLL. “Early-stage tech demand is showing up in the sublease and Class B markets, where tenants can often find shorter terms.” JLL says tenants may be becoming more cautious as the number of lease renewal transactions has increased of late. In fact, according to the report, renewals accounted for half of the top 10 Midtown leases signed year-to-date this year compared with just two in the first quarter of 2015. Salesforce.com signed the largest transaction of the quarter, subleasing 202,678 square feet at 1095 Ave. of the Americas from MetLife. Overall leasing throughout New York City was moderate, according to JLL. That is not to say there were not some high profile deals closed in the first quarter. For example, McGraw Hill Financial Inc. signed a 900,027-square-foot lease renewal at 55 Water St. In addition, Citadel signed for 200,000 square feet at 425 Park Avenue while Facebook agreed to another expansion deal, this time totaling 29,735 square feet at 770 Broadway. Midtown’s Class A vacancy rate rose for the sixth consecutive month, reaching 11.6% in the first quarter quarter, up from a recent low of 9.8% recorded in the third quarter of 2015. Midtown’s overall vacancy rate rose to 10.4% this quarter, an increase of 0.5 percentage points from 9.9% at year-end 2015. Recent landlord rent reductions in Midtown were outweighed by top-tier space coming to the market at 390 Madison Ave. as well as several floors at 250 W. 55th St. that were previously occupied by Al Jazeera. The overall average asking rent recorded greater gains, as demand for Class B space tightened vacancy there, JLL states. Overall average asking rents in Midtown rose slightly to $74.98-per-square-foot in the first quarter, an increase of 2.4% from $73.19 per square-foot at year-end 2015. Class A average asking rents rose to $81.09-per-square-foot in the first quarter of 2016, an increase of 1.1% from $80.24-per-square-foot the previous quarter. Midtown South’s overall vacancy rate increased to 6.9% in the first quarter from 6.3% at year-end 2015. The Class A vacancy rate rose to 5.9% in the first quarter of 2016, an increase of 0.3 percentage points from 5.6% the previous quarter. Midtown South average asking rents rose to $68.61-per-square-foot in the first quarter of this year from $69.06-per-square-foot at year-end 2015. Midtown South’s Class A average asking rents rose to $79.59-per-square-foot in the first quarter of 2016 from $78.41-per-square-foot at the end of the fourth quarter of 2015. Downtown’s overall vacancy rate was unchanged at 11.1% at the end of the first quarter of this year compared to the previous quarter. The Class A vacancy rate declined to 11.5% in the first quarter of 2016, a decrease of 0.5 percentage points from 12.0% the previous quarter. Overall average asking rents in Lower Manhattan were relatively flat at $57.73-per-square-foot in the first quarter, compared to the $57.60-per-square-foot rate posted at year-end 2015.