As Goes the Downtown Office Market, So Goes Manhattan

The downtown Manhattan office vacancy rate dropped from 8.37 percent in the second quarter of 2007 to 7.76 percent at the end of the third quarter, which ended Sunday, according to a new report from brokerage Jones Lang LaSalle. The vacancy rate for top-flight, Class A space in downtown dropped from 7.08 percent in the second quarter to 6.09 percent in the third.

That was the case in Manhattan's other two main commercial markets, midtown and midtown south. In midtown, the Class A rate was down from 7.32 percent to 7.11 percent, and the overall rate was down to 7.28 percent, also from 7.32 percent. In midtown south, the Class A rate had dropped to a remarkably low 2.11 percent, from 2.78 percent in the second quarter; and the overall rate was down to 3.89 percent from just over 4 percent.

But it's downtown that the continued vacancy rate drops are most notable. It's downtown, after all, that has traditionally--and especially, since September 11--lagged the other markets in office leasing. The market has clawed its way back from 2001, to tangible gains for office landlords and for the economy down there as a whole. Office rents are up--the average Class A rents rose 2.97 percent from the second to the third quarter to $50.64 a square foot, according to Jones Lang LaSalle, still a bargain by midtown prices (those averages are in the $60's a foot), but well above what most would've expected only three or four years ago.