Year Of Recovery For NYC Office Market Ended With A Whimper

High availability rates and a slow end to the year have thrown a cloud over New York’s office leasing environment as a whole, but the top end of the market is still experiencing significant activity.

A total of 23.2M SF of office space was leased in Manhattan in 2022, a 14% increase over the year before, per CBRE data. The volume was weighed down by a slow end to the year, a familiar theme in other sectors of the market, as would-be tenants put deals on hold amid a gloomy economic climate.

Total leasing volume for the last quarter of the year was 4.42M SF, down 27% on the five-year quarterly average. But CBRE Research Manager Michael Slattery said the market is getting better, not worse.

“We are below a longer-term annual average, but 23M SF is not that 12M SF that we did in 2020,” he said, adding that 2022 saw the same leasing volume as 2016. “Just keeping it in a little bit of perspective, long-term it is still not as healthy as we were in the best years, but definitely a far cry from where we were during the frozen pandemic.”

Availability in the borough hit 19.2% in the fourth quarter, up 50 basis points from a year ago, while tenants gave back 1.54M SF more than they leased. On the year, Manhattan saw 2.2M SF of negative absorption, a far cry from the  15.7M SF of negative absorption in 2021, according to CBRE.

There were multiple lease deals that made waves in 2022. The largest office lease in Manhattan in three years closed in Q4, when Fox and News Corp. renewed their lease agreements at Ivanhoé Cambridge’s 45-story 1211 Sixth Ave. The second-biggest deal of 2022 was KPMG’s headquarters move to Brookfield's Two Manhattan West, taking a lease for around 450K SF — a 40% space reduction to cater to the firm’s hybrid working schedule.

KPMG's lease was indicative of the demand for high-end space: Manhattan recorded more $100 per SF office lease deals, and more $200 per SF deals, than ever before in 2022, Slattery said.

“There's still problems with the rest some of that commodity space, and that's what's dragging the market,” he said. “But again, I think that's why we see the task force putting out their suggestions to make conversions easier to get rid of some of that obsolete office stuff.”

This week, Mayor Eric Adams released 11 recommendations from the city’s Office Adaptive Reuse Task Force that would make some 136M SF of office space in the city able to be converted to residential because of zoning and legal changes. Office-to-resi conversions have been heralded as a potential answer to the city’s oversupply of older office stock and undersupply of housing, but it has not become a widespread practice — yet.

A joint venture of GFP Real Estate, Nathan Berman’s Metro Loft Management and Rockwood Capital is working on plans to attempt the biggest office-to-residential conversion in the city’s history by turning 25 Water St. into 1,200 apartments. MetroLoft is working with Silverstein Properties to buy 55 Broad St., a largely vacant office building, and turn it into more than 500 apartments.

The preference for newer office buildings is also bearing out in the availability rates, Colliers Executive Managing Director Franklin Wallach said.

Prewar properties in Midtown have an availability rate of 17.4%, while buildings built between 1940 and 1979 are at 15.9% availability. By comparison, buildings built after 2000 are at 10% availability.

“There's absolutely, in segments of the market, a feeling of a sort of K-shaped recovery,” Wallach said. “It is a non-homogenous market … You could be standing in the exact same market, but having two or three or four very different experiences.”

Brokers noted at the end of the year that the final few months were largely defined by deals being on pause. And while the first quarter may remain quiet, there is an expectation that this year will provide significant opportunities for tenants that will bring them back to the market.

“I think it’s going to be a time where we see some really interesting deals get done,” CBRE Executive Vice President Lauren Crowley Corrinet told Bisnow late last year. “Everyone gets nervous about a recession. 2023 could be the year of opportunity.”