Manhattan Office Leasing Improves But Availability Still Pushed To New Highs

Office leasing stirred to life last month in Manhattan, with activity increasing from April and year-over-year. But those leases have done little to offset a rising availability rate, which hit a new record in May.

A total of 1.53M SF was leased last month, per Colliers International data, which marks an 8% jump on May 2020. The month-over-month increase was far more significant with a 56% increase from April.

“The Manhattan office market is still at a point of supply outpacing demand. Even though leasing volume increased in May, the market was still well below the amount of activity seen pre-pandemic,” Colliers Senior Managing Director Franklin Wallach wrote in an email. "It must be remembered, though, a large portion of the supply that came on the market in May was either due to new construction/major renovations — such as 295 Fifth Ave. — or committed tenant relocations that occurred pre-pandemic, such as 5 Times Square and 360 Park Ave. South.”

Availability is still steadily rising and went up for the 12th month in a row to reach 17%, according to Colliers. In all, Manhattan’s office availability has increased by more than 70% since the crisis started to reach a total of 91.64M SF. Meanwhile, average asking rents are down by nearly 8% from pre-pandemic levels and are sitting at $73.26 per SF. Wallach also noted that the borough’s net sublet availability decreased for the second month in a row.

“This could possibly be a sign of 'the beginning of the end' of Manhattan’s sublet increase post-pandemic or this might just be a temporary respite,” he said. “Either way, the total sublet availability increased by more than 75% since March 2020. Therefore, a far larger amount of the sublet inventory will need to be absorbed or subleased before it approaches anywhere near pre-pandemic levels.”

In Midtown, leasing activity was down 43% since May, while Midtown South experienced its best month of leasing since October last year. Downtown was the big winner of the month, with leasing volume there almost tripled from April to make it Lower Manhattan’s best month of leasing since February last year.

That was driven largely by the Securities and Exchange Commission’s 302K SF extension at 200 Vesey St. and Fiserv Inc.’s 94K SF lease at 1 Broadway, per Colliers. Other major leases of the month were Infor’s 90K SF renewal at SL Green’s 635-641 Sixth Ave. and Anthem’s deal to take 72K SF at Penn 1.

The South African Consulate General also leased 52K at 845 Third Ave., according to Colliers.  

The city has been grappling with an enormously challenging leasing environment in the last year. In 2020, Manhattan saw its slowest year for leasing in two decades, with just 20.5M SF leased in the entire year.

While a successful vaccine rollout and the reopening of the city has brought a sense of optimism to the real estate industry, there are still questions about when office workers will come to their desks in significant numbers — and how many companies may elect to shrink their office space requirements altogether.

“The way I see this unfolding is that the fall will be a trial ground for companies to see what flexibility they may or may not provide their employees on an ongoing basis and how that in turn impacts how much real estate they will need,” Transwestern’s Ornstein told Bisnow last week. “When the rubber hits the road is in 2022. [The] balance of 2021 will be the re-acclimation to the workplace. By the end of the year, early next year, companies will have clarity to make long-term decisions.”