The Real Deal New York

Midtown South proves exception to Manhattan’s stagnant office market

March 08, 2012 12:30PM

Buoyed by the city’s growing technology sector, Midtown South was the strong point in a Manhattan office market that stagnated in February, according to a report released today by Jones Lang LaSalle.

After a brief respite from tightening conditions last month, the vacancy rate in Midtown South fell to 6.6 percent from 6.9 percent, as Class B space was in particular demand, with just 6.4 percent of the 48.6 million square feet of inventory. Class A space in the region had a 7.3 percent vacancy rate, and an average asking rent of $60.20 per square foot.
The overall asking price in Midtown South increased to $48.59, a 2.3 percent gain from January 2012. JLL attributed much of the increase to space in 11 Madison Avenue becoming available.

The figures show just how far Midtown South has come since February 2011, when the vacancy rate was 8.4 percent and the average asking rent was $43.42.

Meanwhile, the rest of the city’s office market is stagnant, according to JLL. In Midtown, the 11.2 percent vacancy rate is nearly equivalent to January’s 11.3 percent, and hasn’t seen a significant shift since September. Activity has slowed in the region, as two-thirds of the way through the first quarter just four leases of more than 100,000 square feet have been signed during the first quarter, compared to seven during the entire quarter a year ago. And the overall rent increased just 18 cents per square foot to $60.25 in February. However, all these figures are marked improvements from February 2011 when the rent was $58.96 and the vacancy rate was 12.3 percent.

One bright spot in Midtown, which JLL attributed to strong starts among hedge funds, is the very top of the market. Eight deals have been recorded in Midtown this year with rents starting “well above” the $100 per square foot mark.

The Downtown vacancy rate fell one-tenth of a percentage point between January and February to 9.8 percent, but that doesn’t reflect the shift in available inventory. The Class B vacancy fell 1.5 percentage points in the month due to a hotel conversion, while the Class A vacancy rate increased to 9.2 percent from 8.5 percent in January as 350,000 square feet in 4 World Trade Center officially hit the market. Average asking rent rose 65 cents per square foot to $40.54. — Adam Fusfeld