Asking rents for the office buildings that make up Midtown’s skyline have steadily climbed in the past year and a half—reaching an average of $98.64 per square foot, nearly 5.0 percent higher than the first quarter of 2015. But JLL’s 2016 Skyline shows that rent growth may be moderating, especially in high-growth markets that have recorded consistent rent appreciation during the past several years.
Rent growth has been steady but expected to moderate
Foreign investors, especially Chinese, Canadians and Germans, remain focused on primary markets but moving to hot secondary markets along with their domestic counterparts
“The Manhattan office market turned cautious in the second quarter of 2016 as total vacancy moved higher and renewal activity—rather than relocations and expansions—captured the bulk of top transactions,” said Tristan Ashby, Vice President and Director of New York research. “Midtown trophy rents remained stable at $98.64 per square foot — the highest in the country — and some Plaza District buildings recorded leases surpassing $200.00 per square foot.”
Plaza District remains premier location, but demand is moving west and south
Owners of trophy properties, especially those in the Plaza District, still have the upper hand for now. Rents for those rising towers in the Plaza District generally command a 20 percent to 25 percent premium over average skyline asking rents due to proximity to Grand Central Terminal and the Upper East Side. However, some of New York’s most expensive buildings are now found elsewhere. Newer properties, like 250 West 55th Street on Manhattan’s West Side and 51 Astor Place in Greenwich Village, routinely capture rents topping $100 per square foot.
Modest declines in investment volumes
Overall investment volumes into the skyline fell slightly in 2015, due to strong demand and liquidity for skyline assets earlier in the economic cycle as well as the generational nature of many acquisitions since the Global Financial Crisis. As a result of the scarcity of opportunities only 9.5 percent of the skyline across North America traded in 2015, down from 10.7 percent in 2014.However, the drop in investment volumes in the first quarter of 2016 was even more precipitous—down more than 72 percent in primary markets and nearly 47 percent in secondary markets. New York, which had reported the highest investment sales volume of any city in the world for the first time in 2015 at $60.2 billion of volume ($24.1 billion office), recorded a total of $12.3 billion of volume ($6.7 billion office) in the first quarter of 2016. Though total dollar volume through March did not pace the average established the previous year, it represented strong activity relative to historical averages.
Foreign investors now own more than 14 percent of the North American skyline, with Canadians and Germans claiming more than 60 percent of that total. In 2015, those cross-border buyers remained focused on the biggest and the best—with more than 60 percent of those dollars targeting trophy assets. Nearly 94 percent of their investment dollars went into primary markets such as New York ($4.6 billion), Boston ($1.4 billion) and Seattle-Bellevue ($700 million). In New York, Chinese investors have been particularly active in the office sector, highlighted by the recent purchase of 1285 Avenue of the Americas by RXR Realty, David Werner and China Life Insurance for $1.65 billion.
About the Skyline Review
Investors and tenants alike can access JLL’s Skyline via a digital platform. The fully interactive website will feature JLL’s proprietary market insights regarding office supply, demand, rents, leverage and investment into 52 markets across the United States and Canada, with the ability to compare and contrast individual markets or multiples of markets as well as individual properties or portfolios. In addition, the site will offer videos and infographics. All information will also be accessible via mobile.
About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $58.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.
