One of Manhattan’s hottest office building zones may be pricing itself out of the market.
Midtown South, for years one of the most sought-after areas for companies — ironically, because of its lower-than-Midtown rents — saw its vacancy rate tick up in the second quarter of 2015 from the first three months of the year, according to a market report out Friday.
The rise came amid rising rents.
Class A vacancy rates jumped 11.5 percent in the second quarter, to 6.8 percent from 6.1 percent in the first quarter, said the report from JLL.
The vacancy rate for Class B buildings rose to 7.4 percent in the three months ended June 30, from 6.1 percent the previous quarter.
Average Class B rents increased 8.4 percent in the second quarter, to $60.86 a square foot, from a year ago — and 10.3 percent from the first quarter, according to JLL.
“Three buildings that are bellwethers had consistent price appreciation: 114 Fifth, 11 Madison and 770 Broadway,” said Jim Wenk, JLL’s managing director.
At 770 Broadway, in fact, the latest lease with Facebook was pegged at $105 per square foot.
“There has been steady price appreciation,” Wenk said. “Is it starting to hit a ceiling? Yes.”
With just 37.73 million square feet of Class B space in Midtown South and just shy of 26 million square feet of Class A space, this is the smallest of Manhattan’s three office market segments.
Wenk noted that Midtown South buildings tend to have smaller floor plates, so as companies grow, they may end up on numerous floors.
At some point, he said, to enable more interactions and collaboration, they will move to buildings with 25,000 square-foot floor plates, but those are few and far between in Midtown South, and like last year’s availability at 11 Madison, are quickly gobbled up.
“Tenants have gone to Midtown and Downtown for better buildings and better spaces for their businesses,” Wenk said.
