New York's Office Market Is Starting To Get Its Mojo Back

It's nothing like the heyday of 2019, but the first half of 2024 has brought real momentum back for the owners of Manhattan office space.

Tenants signed 11.5M SF of office leases during the first half of 2024, 11% more than through this time in 2023, according to JLL data first provided to Bisnow. 

“It’s a recovery in the sense that we’re ahead of where we were at the same time last year,” said Andrew Lim, JLL’s director of New York research. “We’re also tracking more active requirements in the market and have a better sense that more leasing is on the horizon, which was not the feeling we had in the first half of 2023.”

Around 2M SF of office space was earmarked for conversion in the quarter, reducing vacant office space from 17.5% in Q1 to 17% in Q2, according to JLL. 

Buildings taken off the market during the quarter included 1740 Broadway, which Yellowstone bought for $185M after former owner Blackstone handed the keys to its lender. The building is poised to be converted at least partly to apartments. 

“It’s buildings that are older, have been either vacated by their anchor tenant a while ago and they haven’t been replaced or no one has taken their space once they’ve left,” Lim said. “It's one of the things that will bring the office market in New York back to a healthier state of being.”

Other examples include SL Green’s 750 Third Ave., a 35-story Midtown Manhattan tower the REIT plans to turn into more than 500 units of housing, as well as the residential conversion of pharmaceutical giant Pfizer’s former headquarters at 219 and 235 E. 42nd St. 

“People have always said, ‘Why don't we just convert all the buildings?’” Lim said. “Now we're starting to see that in earnest.”

Relocations made up 60% of the leasing activity for the month, JLL found. That’s a shift from the first quarter when the largest leases were renewals rather than new leases. But the largest deal during the past three months was a major tenant staying in place, with Bloomberg renewing for almost 1M SF at 731 Lexington Ave.

The largest deal in June was Covington & Burling’s relocation from 820 Eighth Ave. to 30 Hudson Yards, where the law firm signed for 235K SF. The second-largest was Stripe’s 147K SF sublease to move to 28 Liberty.

Another sign of recovery was the city’s declining office availability, which fell from 87.8M SF to 86.5M SF citywide in the second quarter, now sitting at 18.1%. 

That drop was fueled almost entirely by the takeup of space in trophy and Class-A office buildings, according to JLL. Availability at trophy buildings ticked down 10 basis points to 12.2% and fell from 19.3% to 18.8% at Class-A buildings. More than 1M SF of Class-B space became newly available over the same period. 

“You're starting to see buildings that are solid [Class-]A buildings that are just in very good locations that are starting to see more activity — even competition — for space, because it's the next-best available space available in the market,” Lim said.

Sublease activity is feeding into that dynamic, with availability dropping to 19.7M SF after eclipsing 20M SF at the beginning of the year. That is happening as tenants try to poach trophy and Class-A space from tech and media companies, which signed for large blocks of best-in-class space and have since set out to sublease them.

Signing for those spaces puts those tenants first in line to snag direct leases down the line, as Covington & Burling and trading firm Susquehanna International Group have already done in Warner Bros.’ space at 30 Hudson Yards, Lim said. 

“Competition is just going to get tighter and tighter as availability and new construction continues to fall and the best spaces get taken up,” Lim said. 

Still, overall activity shows that New York City’s office market has a long road ahead of it, with vacancy at roughly twice the levels of a normal market, owners of nearly 90M SF looking for tenants and the future of work and the economy still up in the air.

“We're in a period where tenants are in the market, but transactions in general are taking longer because there's so many more layers of review and due diligence now,” Lim said. “There's a lot of waiting that depends on the greater macroeconomic picture. Until that happens, all these different factors that would help bring the market back to a healthy or normal state are kind of on hold.”