Office Availability In Manhattan Up 50% Despite Increased Activity

A year after the coronavirus pandemic first struck, Manhattan’s office market is still reeling, with this century’s highest availability rate and a sharp decline in rents, first-quarter market reports released Thursday show. But an uptick in the rate of new leases signed in the first three months of 2021 could offer the first glimpse of recovery.

With not nearly enough demand to keep up with new space becoming available, availability increased over 50% from Q1 last year before the pandemic took hold in New York, reports from Savills and Colliers show. Nearly 79.7M SF of office space is available, accounting for 17.2% of its overall supply, according to Savills. 

“The scale of the increase in supply that occurred over this period was really noteworthy to a point you have to take a step back,” Colliers Senior Managing Director of Research Frank Wallach said. “This is the largest office market in the United States.” 

Dwindling demand continued to drive rents down significantly for the fourth quarter in a row — average asking rent declined 7.9% year-over year and 1.6% from the previous quarter, according to Colliers. Class-B and Class-C office space saw steeper quarterly declines than Class-A space. 

The market did show signs of life, though, with an increase in new leases signed this quarter. Some 2.28M SF of new space, not including expansion, was leased up, more than twice as much as in the last quarter of 2020 (1.06M SF), but still nowhere near the 4.96M SF in new leases signed in Q1 of last year, according to Colliers. 

“We saw the beginning stages of tenants re-engaging the markets,” Wallach said. “This is one of the early indicators. Those are all pointing to really overall what 2021 will be — a period of that re-engagement, but it is still going to be a ramp-up to get us to those pre-pandemic levels.”

More new tenants joined the leasing market too. Lease renewals and expansions made up only 40.2% of overall leasing volume last quarter, nearly 24 points down from the 64% share from Q4 2020, according to Savills. 

“It’s still a little bit too early to really pinpoint the exact timeline on this [recovery],” Savills New York and Tri-State Region Research Director Danny Mangru said. 

Trends in the next six to 18 months will paint a better picture of where the city's real estate market will go as companies determine the future of their workplaces, Mangru said. 

Roughly 10% of Manhattan workers are currently back in the office, even as the vaccine rollout continues, a survey from The Partnership for New York released earlier this month showed. Some 45% of workers plan to return by the end of the summer, according to the survey. 

Still, some companies have used the moment to ink big leases so far this year. 

Midtown was the biggest benefactor from the increase in lease volume, with 75% of the quarter's new leases, mostly by financial services, insurance and real estate companies, according to Colliers. The largest lease of the quarter, Mount Sinai's Icahn School of Medicine’s 165K SF deal at The Georgetown Co.’s new life sciences development at 787 11th Ave., was signed in Midtown West. The location will be used by doctors near Mount Sinai West, Mount Sinai Vice President of Real Estate Thomas Ahn told Bisnow earlier this month. 

“Hospitals and academic medical centers, medical centers, like to expand your facilities close to their main hospital,” he said. “I knew that it was a landlord who had a lot of capitalization and had the ability to close the deal … That's why we chose that property.” 

Some tenants moved into New York office space from other cities. Beam Suntory, which owns Jim Beam and other liquor brands, announced it would move its headquarters to New York City from Chicago with a new 100K SF office overlooking  Madison Square Park. It signed a 15-year deal at SL Green’s 11 Madison Ave. in January. 

“Midtown South was one of the most popular submarkets in the country prior to the pandemic. I don’t think the attributes of that market have changed,” SL Green Executive Vice President and Director of Leasing and Real Property Steven Durels told Bisnow at the time. “The things that made it popular before COVID are going to make it remain popular.”

The public sector was the top new tenant downtown this quarter, signing 40% of total leases in the submarket, including New York state's 65K SF lease at 199 Church St., according to Colliers. 

Technology, accounting, media and information companies — the sector that put the most space on the sublease market in the third quarter of last year — only made up 8% of lease volume this month, Wallach said, though he doesn't think that is an indicator that Manhattan will be less attractive to these companies post-pandemic; TAMI companies have signed the biggest leases in Manhattan over the past year. 

Sublease space continued to expand, with companies listing 3.4M SF on the sublet market, including JPMorgan's listing for 700K SF, first reported this week by the Wall Street Journal. Sublease space made up around 25% of the overall available space at the end of the first quarter of 2021, Wallach told Bisnow.

Some 22M SF is currently on the market, surpassing the last two recessions peaks, according to Savills, and it probably hasn't hit its peak yet, Mangru said. This will continue to drive down rents for both direct space and sublet space. 

“There is absolutely downward pressure on asking rents with this much space on the market right now and with competition from sublease space,” Mangru said. “Now you start to see asking rents for sublease space start to drop, too."