Big Deals Fuel NYC's Office Vacancy Decline in Second Quarter

NEW YORK CITY—Mega deals by BNY Mellon and Time Inc. during the second quarter helped push Manhattan's overall vacancy rate down to 10.6% or 0.5 percentage points lower than the vacancy rate in the first quarter of this year, according to brokerage firm JLL.

In fact, New York City has recorded 26 leases of at least 100,000 square feet so far this year, as compared to 19 during the firsts half of 2013.

The brisk deal volume helped push New York's overall vacancy rate to its lowest level since the third quarter of 2012. The city's Class A vacancy rate fell to 11.5% at midyear 2014, a decrease of 0.9 percentage points from 12.4% the previous quarter.

“Businesses appear more willing to spend capital to relocate, even if that decision is a net consolidation to improve efficiencies, while landlords are less reluctant to lose anchor tenants in what many view as a rising market,” says Tristan Ashby, director of New York research for JLL “We expect more large leases to close by summer's end, which could send Manhattan vacancy rates even lower, perhaps below 10% by the end of the year.”

Overall average asking rents in New York City rose to $64.57 per square foot at the end of the second quarter of this year, an increase of less than 1.0% from the $64.26 per square foot asking rent average in the first quarter of 2014. The city's Class A rents grew to $71.28 per square foot at midyear 2014, an increase of less than 1.0% from the $70.72 per square foot rate posted the previous quarter.

The market that saw the biggest change in its second quarter vacancy rate was in the Downtown and specifically the Lower Manhattan district. JLL reports that BNY Mellon and Time Inc.'s two big leases in Lower Manhattan in the second quarter took 1 million square feet of space off the market. The two deals pushed overall and Class A vacancy rates down significantly. Downtown's overall vacancy rate fell to 12.1% this quarter, a decrease of 1.1 percentage points from 13.2% in the first quarter of 2014.

The submarket's Class A vacancy rate dropped to 13.0% at midyear 2014, a decrease of 1.8 percentage points from 14.8% the previous quarter. BNY Mellon signed a lease for 350,000 square feet at 225 Liberty St. at Brookfield Place and has agreed to sell its former headquarters at 1 Wall St. to Macklowe Properties for $585 million. Time committed to 669,832 square feet at 225 Liberty St., representing the largest relocation since the announcement of the Condé Nast lease deal at One World Trade Center in 2011.