Manhattan's Office Rental Markets Modestly Recalibrate in October
Based on a new report by Jones Lang LaSalle, Manhattan's primary office rental markets posted mixed results in October 2011.Midtown Manhattan
Class A vacancy moved higher in October, up to 11.4 percent, after falling for the last several months. Although the rate declined through the summer months, it has not fallen below 11.0 percent since November 2009. A slowdown in leasing activity and space returned to the market contributed to the increase in vacancy. The largest deal of the month was Parson Brinkerhoff's renewal at One Penn Plaza for 173,000 square feet. Class A vacancy rates range from a high of 14.1 percent in Penn Plaza/Garment to a low of 8.2 percent in Times Square.
Despite the backslide in the vacancy rate Class A average asking rents moved higher in October, up to $70.28 per square foot from $69.49 last month. The rise in rates came as higher-priced space was placed on the market in a few trophy properties. The escalation in pricing pushed Class A rents past the $70.00 mark for the first time since the end of the third quarter 2009.Midtown South Manhattan
In what is already the tightest office market in the U.S., vacancy rates in Midtown South declined further in October, hitting a low of 6.4 percent. Pearson Education's transaction of 275,000 square foot lease at 330 Hudson Street was the catalyst behind the drop. The lease also brought Class A vacancy to an astonishing low of 4.6 percent--a low not seen since early 2007. Since 330 Hudson Street had the only block of space available in Hudson Square, there is currently no longer any Class A space available in that submarket.
Pearson's lease also affected average asking rents. Class A rents fell to $47.07 per square foot, down from $48.05 in September as the higher priced space at 330 Hudson Street was leased. Pricing for Class A space is now highest in Chelsea as two of Midtown South's five submarkets are at full occupancy. Average rates for Class B space moved higher during the month--up to $42.64 per square foot, from $41.89 during the prior month. Rents for Class B space are expected to rise as the Class A vacancy continues to fall and demand continues unabated.Downtown Manhattan
Defying most everyone's expectations, Downtown's vacancy rate remained within equilibrium level through October, finishing at 9.7 percent--down from 10.1 percent at the end of the third quarter. Class A vacancy still remains below 9.0 percent, ending the month at 8.6 percent. Looming space dispositions at the World Financial Center will likely to push vacancy higher in 2012. Longer-tem vacancy will be impacted by the delivery of the World Trade Center site in 2013-14.
Class A rents fell slightly in October, slipping to $41.65 per square foot from $41.89 in September. Class B rents, conversely, rose to $36.66 per square foot from $36.60 one month earlier. As space at the aforementioned World Financial Center comes to the market, average asking rents will rise even as vacancy increases--given the quality of product.