"Although there appears to be some stability in the Midtown market, it is still too early to definitively say that vacancy has peaked," James Delmonte, VP and director of research for JLL's New York office, says in a release. "While it is important that activity has returned to the market, it is not likely that it will lead to substantial absorption of space over the next 12 months. Much of the current deal flow in the market consists of renewals and relocations, neither of which will reduce current supply levels."

The fall 2009 Skyline Review says that Manhattan's top-tier office buildings saw overall average asking rental rates drop 17.8% in the past six months, compared to a decrease of 18.7% between fall 2008 and this past spring. In terms of dollars, that translates into an average $68.73 per square foot, compared to $83.66 per square foot six months earlier.

For Midtown trophies, average asking rental rates dropped by 17.2% from six months earlier, falling from $88.88 to $73.58 per square foot. Last spring, the Skyline Review had noted a 24.3% drop in rents for Midtown trophy buildings.

Rent declines finally caught up with Downtown buildings, which had avoided double-digit rent declines in recent years. The drop-off in six months reached nearly 22%, slipping to $47.16 square foot from $60.23 per square foot six months earlier.

"Vacancy rates for Downtown trophy-class properties have remained around 9% over the past few months," Delmonte says in the release. He adds that it's likely that availability there "will spike over the next several years as several large institutions have yet to finalize occupancy plans. Depending on what decisions are made, vacancy rates in Lower Manhattan could potentially rise above 20% by 2014."

JLL's report notes that Manhattan's vacancy rate is expected to peak in the coming year and begin to gradually decline as employment turns positive. Space will continue to come to the market, albeit at a slower pace, through the next 12 months. "Downtown could be the exception, where consolidation among the district's largest tenants has yet to be finalized and major dispositions in Downtown's trophy properties are still possible," according to a release.

The report jibes with the easing-off of rent declines reported by Cushman & Wakefield in its third-quarter report two months ago. C&W noted at the time that overall average asking rents for Manhattan dropped 5.2% to $57.08 per square foot at the end of Q3, compared to $60.23 per square foot at midyear 2009, and a 21.8% year-over-year drop. The firm noted that although average asking rents for both sublease space and space available directly from landlords have decreased, sublease space has been more heavily discounted over the past year.

"Like previous cycles, there is evidence that some tenants may chose to hold on to space rather than sublease at a significant loss," according to JLL. "While this may temper the vacancy rate in the near-term, it suggests that new demand could be delayed for even longer: either tenants will expand into existing inventory when the economic recovery arrives or they will let direct space expire over the next few years.

Instant Insights /

Trophy Rents Shrink, But More Slowly

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