Major office occupiers position themselves to attract New York area’s skilled labor pool by consolidating into high-end buildings, campus environments

When JPMorgan Chase & Co. announced that it would tear down and redevelop the 60-year-old 270 Park Avenue in the first quarter of 2018, the financial services firm became the first to capitalize on New York’s recently enacted Midtown East rezoning plan. This allowed JPMorgan Chase to acquire air rights from landmarked properties to construct a significantly taller, more-efficient tower.

“JPMorgan Chase continued to position itself to access and attract the New York area’s skilled labor pool while gaining workplace efficiencies, often by consolidating their workforces into single high-end buildings or campuses,” said Sean Coghlan, JLL’s Senior Director of Americas Research. “This has been a prevailing trend in a tightened, competitive labor market. Google also re-established its campus environment in the Meatpacking District, following its acquisition of Chelsea Market earlier this year.”

Manhattan’s Class A rents decreased by 1.0 percent in the first quarter of 2018, dipping to $79.62 per square foot from $80.44 per square foot at year-end 2017. The decrease in Class A rents was largely due to a $0.91 per square foot drop in the city’s Class B rates this quarter. Overall rents in Midtown slipped less than 1.0 percent in the first quarter of the year, decreasing to $72.48 per square foot from $72.91 per square foot at year-end 2017. This is just the third time in the past 29 quarters the submarket has witnessed a decline in overall rents.

New York’s Class A product posted a 3.4 percent (or 30 basis points) dip in vacancy rates this quarter, falling to 8.5 percent from 8.8 percent from year-end 2017. Overall vacancy rates also slipped 3.4 percent (or 30 basis points) in the first quarter of the year, dropping to 8.5 percent from 8.8 percent at year-end 2017.

Midtown

Midtown witnessed a number of notable transactions in the first quarter of 2018, including JPMorgan Chase leasing 418,241 square feet at the redeveloped 390 Madison Avenue, Greenberg Traurig LLP committing to 140,000 square feet at the One Vanderbilt development site, Simon & Schuster Inc. renewing 283,000 square feet at 1230 Avenue of the Americas, and Nasdaq Inc. relocating from Downtown into 149,175 square feet at 4 Times Square.

Space users continued to prefer Midtown’s Class A buildings by a wide margin, with high-end product claiming 15 of the submarket’s top 20 transactions in the first quarter of 2018.

Midtown Class A average asking rents were down 1.7 percent in the first quarter of the year, decreasing to $82.76 per square foot from $84.15 per square foot at year-end 2017. This was largely due to elevated leasing activity at high-priced properties and a $1.31 decrease in Class B pricing. Overall rents in Midtown fell 1.2 percent this quarter, decreasing to $75.83 per square foot from $76.74 per square foot at year-end 2017.

Steady leasing velocity and few new supply additions pushed the Midtown vacancy rate down 3.3 percent (or 30 basis points) this quarter, falling to 8.9 percent from 9.2 percent at year-end 2017. Midtown’s overall vacancy rate also slipped by 3.3 percent (or 30 basis points) in the first quarter of the year, dropping to 8.7 percent from 9.0 percent at year-end 2017.

Midtown South

A few sizable transactions in the first quarter of 2018 helped Midtown South post its fourth consecutive quarter of positive absorption. Google Inc. closed on its $2.4-billion acquisition of 75 Ninth Avenue, also known as Chelsea Market, marking the second-highest price ever paid for an office building in New York. In addition, Roc Nation LLC signed a lease for the 73,000 square feet of available office space at the newly delivered 540 West 26th Street. Facebook also continued to grow in Midtown South, expanding its presence by 78,000 square feet at 770 Broadway.

The heavy leasing volume resulted in Class A vacancy rates dropping 12.5 percent (or 80 basis points) this quarter, falling to 5.6 percent from 6.4 percent at year-end 2017. The submarket’s overall vacancy rates fell 11.9 percent (or 80 basis points) in the first quarter of the year, dropping to 5.9 percent from 6.7 percent at year-end 2017.

Asking rents rose throughout Midtown South this quarter as pricier spaces were added to the inventory, primarily in newly constructed properties. Class A average asking rents in Midtown South grew 6.4 percent in the first quarter of the year, rising to $88.75 per square foot from $83.44 per square foot at year-end 2017. Overall asking rents for the submarket’s office buildings increased 6.3 percent this quarter, increasing to $80.18 per square foot from $75.40 per square foot at year-end 2017.

Downtown

Bank of America inked the largest transaction signed Downtown in the first quarter of the year with its renewal of 189,127 square feet at 225 Liberty Street. A few large subleases were added to the Lower Manhattan inventory in the first quarter of the year, pushing Class A and overall vacancy rates higher.

As a result, Downtown witnessed a 3.4 percent (or 30 basis points) increase in Class A vacancy rates this quarter, rising to 9.2 percent from 8.9 percent at year-end 2017. Overall vacancy rates grew 2.1 percent (or 20 basis points) in the first quarter of the year, increasing to 9.7 percent from 9.5 percent at year-end 2017.

Class A average pricing in Downtown dropped 3.5 percent in the first quarter of the year, slipping to $66.39 per square foot from $68.77 per square foot at year-end 2017. Overall asking rents for Lower Manhattan office buildings decreased 2.2 percent this quarter, decreasing to $60.68 per square foot from $62.05 per square foot at year-end 2017.

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JLL is a leader in the New York tri-state commercial real estate market, with more than 2,400 of the most recognized industry experts offering brokerage, capital markets, property/facilities management, consulting, and project and development services. In 2016, the New York tri-state team completed approximately 28.2 million square feet of lease transactions; arranged investment sales, notes, debt and equity transactions valued at more than $12.0 billion; managed projects valued at $7.9 billion; and oversaw a property management, facilities management and agency leasing portfolio exceeding 146.7 million square feet.

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2017, JLL had revenue of $7.9 billion; managed 4.6 billion square feet, or 423 million square meters; and completed investment sales, acquisitions and finance transactions of approximately $170 billion. At the end of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of 82,000. As of December 31, 2017, LaSalle had $58.1 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.