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Slow summer of leasing sets pace for lukewarm market.

Jones Lang LaSalle announced that despite slower leasing volume over the summer, vacancy rates have fallen in Manhattan in all office building classes and every submarket in the third quarter of 2011. Higher prices for the city's trophy office buildings fueled a boost in overall and Class A average asking rental rates in Midtown and Downtown office product, while Midtown South office buildings saw rates re main stable.

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"The summer months are typically the slowest for the Manhattan office market and this year proved to be no different," said James Delmonte, vice president and director of research for Jones Lang LaSalle's New York office.

"Vacancy rates slowly improved and absorption, while positive, was off considerably from the second quarter. Meanwhile, average asking rents have risen mostly on the strength of the city's trophy market. Wide disparities in rents exist within the market depending on geographical location and position within a building."

Midtown posted its second consecutive quarter of falling vacancy rates in all building classes in the third quarter of 2011. The overall vacancy rate fell to 11.2 percent in the third quarter of 2011, a decrease of 3.3 percent from the overall vacancy rate of 11.6 percent at midyear 2011.

Class A vacancy rates dropped to 11.2 percent this quarter, a decrease of 5 percent from the Class A vacancy rate of 11.7 percent the previous quarter. The submarket's Class B vacancy rate remained unchanged at 11.4 percent in the third quarter of the year.

Also for the second consecutive quarter, Midtown's Class B office buildings posted a slight decrease in average asking rental rates while the submarket's high-end properties recorded an increase in rates.

Class A buildings posted rents of $69.49 per square foot in the third quarter of 2011, an increase of 3.0 percent from Class A rents of $67.44 per square foot at midyear 2011. Midtown's Class B product saw rents of $45.95 per square feet this quarter, a decrease of 1.4 percent from Class B rates of $46.62 per square foot the previous quarter.

"While Midtown vacancy rates continued to move lower this quarter, the pace at which they have fallen has slowed," said Delmonte.

"During the first six months of the year, the vacancy rate dropped a full percentage point as a result of several large leases. The difference in activity between the second and third quarters was dramatic when comparing the number of leases over 100,000 square feet. There were eight during the second quarter, including four leases in excess of 250,000 square feet, and only two during the third quarter."

Although Midtown South did not record double-digit decreases in vacancy rates in the third quarter of 2011, it remained the tightest office market in Manhattan and one of the tightest in the nation.

This quarter marks the seventh straight quarter the submarket has seen vacancy rates drop in all property classes. The overall vacancy rate dropped to 6.6 percent in the third quarter of 2011, a decrease of 2.2 percent from the overall vacancy rate of 6.7 percent at midyear 2011.

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Midtown South's Class A buildings saw vacancy rates fall to 6.2 percent this quarter, a drop of 4.9 percent from the Class A vacancy rate of 6.5 percent the previous quarter. The submarket's Class B vacancy rate dropped to 6.7 percent in the third quarter of the year, a decrease of 1.3 percent from the Class B vacancy rate of 6.8 percent at midyear 2011.

Midtown South average asking rents remained stable in the third quarter, with Class A buildings posting a small decrease in rates. The submarket's top-end properties recorded rents of $48.05 per square foot in the third quarter of 2011, a decrease of 1.7 percent from Class A rents of $48.86 per square foot at midyear 2011.

Class B buildings saw rents barely change, rising to $41.89 per square feet this quarter from Class B rates of $41.88 per square foot the previous quarter.

Lower Manhattan saw vacancy rates drop in all building classes for the third consecutive quarter in the third quarter of 2011. The submarket's overall vacancy rate fell to 10.1 percent in the third quarter of 2011, dropping 10.1 percent from the overall vacancy rate of 11.3 percent at midyear 2011.

Class A vacancy rates dropped to 8.9 percent this quarter, a decrease of 2.3 percent from the Class A vacancy rate of 9.2 percent the previous quarter. Downtown's Class B vacancy rate fell to 12.2 percent in the third quarter of the year, a drop of 18.1 percent from the Class B vacancy rate of 14.8 percent at midyear 2011.

"Two main factors drove rent increases Downtown in the third quarter: higher-priced space at Seven World Trade Center was leased up while space priced above average came to the market at One World Financial Center," said Delmonte.

"The Downtown market is likely to experience both higher vacancy rates and higher rents in the near-term as quality space is anticipated to come to market."

Unlike Midtown and Midtown South, Lower Manhattan posted increases in average asking rental rates in all building classes this quarter.

High-end buildings Downtown recorded Class A rents of $41.89 per square foot in the third quarter of 2011, an increase of less than 1 percent from the Class A rate of $41.66 per square foot at midyear 2011.

Downtown's Class B buildings posted average asking rental rates of $36.60 per square foot this quarter, rising 2.4 percent from the Class B rate of $35.72 per square foot the previous quarter.
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Comment:Slow summer of leasing sets pace for lukewarm market.
Publication:Real Estate Weekly
Date:Oct 19, 2011
Words:965
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