Midtown Office Vacancy Hits New Low

NEW YORK CITY—Although leasing activity slowed down in the third quarter in Midtown , the submarket's vacancy rate fell to 9.3%, the lowest rate since the third quarter of 2008 when 9% of Midtown's offices were empty.

Q3 marked the eighth consecutive quarter in which Midtown's vacancy rates in iClass A office tightened, brokerage firm JLL reports. Midtown's office vacancy was 9.6% at the end of the second quarter of this year.

“The third quarter is traditionally the slowest of the year in New York, and 2015 was no different,” states Tristan Ashby, JLL's VP and director of New York research. “We expect Midtown vacancy rates to increase in the coming months. Even with the return of strong activity this fall, JLL is tracking a number of large blocks that will come to market during the next several quarters that could temper or reverse recent gains in occupancy.”

In the second quarter of this year, leasing activity in Midtown was significantly higher than the other submarkets in the borough. The surge in activity was fuelled by 21 leases executed during those three months in excess of 100,000 square feet.

Manhattan's overall vacancy rate fell to 9.4% in the third quarter, a decrease of 3.1% (or 0.3 percentage points) from 9.7% at midyear 2015. Year-over-year, the city's overall vacancy rate dropped from 9.7% in the third quarter of 2014. The Class A vacancy rate declined 4.7% to 10.1% in the third quarter of 2015 from 10.6% the previous quarter. Year-over-year, Manhattan's Class A vacancy rate dropped 4.7% from 10.6% in the third quarter of 2014, JLL reports.

Overall average asking rents in New York rose to $68.17-per-square-foot in the third quarter from $67.63-per-square-foot at midyear 2015. Class A average asking rents rose to $75.36-per-square-foot in the third quarter of 2015 from $74.73-per-square-foot in the second quarter. Year-over-year, Manhattan's Class A rates rose 5.2% from $71.66-per-square-foot in the third quarter of 2014.

Among the key takeaways from the JLL quarterly report was that seven of Manhattan's top nine third-quarter lease deals were completed in Lower Manhattan, which was a major improvement over the previous two quarters. Lower Manhattan could only muster one of the top 36 deals in Manhattan over the previous two quarters.

Downtown, KCG signed the largest lease of the third quarter, agreeing to a 168,873-square-foot relocation from 1 Liberty Plaza and 545 Washington Blvd. in Jersey City, NJ to Brookfield Place. Also, the NYC Dept. of City Planning took 115,011 square feet at 120 Broadway, Ironshore inked a lease for 101,958 square feet at 28 Liberty St. and Gucci announced it was moving from Midtown into 83,964 square feet at 195 Broadway.

The heady leasing activity combined with only one large block of space hitting the market in the third quarter contributed to a near full percentage point decrease in Lower Manhattan's vacancy rate from the first quarter of this year to 11.5%

The favourable office market report seems to back up a recent survey released by the Royal Institution of Chartered Surveyors who has a bullish view on commercial real estate valuations and the market moving forward into the future.