New York office market posts lowest overall vacancy rates in two years

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Big deals by BNY Mellon, Time push down Lower Manhattan vacancy rates
Midtown South rents break record for 2nd consecutive quarter

NYCTenants signed a slew of deals for large blocks of space across Manhattan in the second quarter of 2014, a marked change from the steady stream of renewals the city recorded during the past two years. New York recorded 26 leases of at least 100,000 square feet in 2014, compared with 19 during the same time period one year ago, according to JLL.

The strong deal volume helped push New York’s overall vacancy rates to their lowest level since the third quarter of 2012. Manhattan’s overall vacancy rate dropped to 10.6 percent this quarter, a decrease of 4.5 percent (or 0.5 percentage points) from 11.1 percent in the first quarter of 2014. The city’s Class A vacancy rate fell to 11.5 percent at midyear 2014, a decrease of 7.3 percent (or 0.9 percentage points) from 12.4 percent 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,” said Tristan Ashby, director of New York research.

“We expect more large leases to close by summer’s end, which could send Manhattan vacancy rates even lower, perhaps below 10 percent by the end of the year.”

Rent increases at the top of the market and the leasing of cheaper sublease space helped push up average asking rental rates in every building class and submarket in the city. Overall average asking rents in New York rose to $64.57 per square foot this quarter, an increase of less than 1.0 percent from $64.26 per square foot 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 percent from $70.72 per square foot the previous quarter.

Quarter Two submarket highlights are as follows:

Midtown South

  • New leases accounted for approximately 70.0 percent of all transactions closed in Midtown South in the second quarter — a sign of net growth for the district.
  • New deals inked this quarter included Sony’s 506,476-square-foot lease at 11 Madison Avenue and New York University’s 70,400-square-foot lease at 665 Broadway in Greenwich Village.

Midtown

  • Strong activity drove overall vacancy rates in Midtown to their lowest level since third quarter of 2008, Class A vacancy rates to the lowest level since the second quarter of 2012 and Class B vacancy rates to the lowest level since the second quarter of 2008.

Downtown

  • BNY Mellon and Time Inc. inked two big leases in Lower Manhattan in the second quarter of 2014, taking 1 million square feet of space off the market.
  • The two deals pushed overall and Class A vacancy rates down significantly more than is usual for one of the biggest office markets in the country.

Read more about the second quarter performance of the New York office market here.

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