Manhattan office market still faces record availability and slow office leasing – Trade Observer

Manhattan’s struggling office market is not out of the woods yet.

According Lee & Associates NYCmid-year report on the Manhattan office market. Coupled with office market rents still at their lowest level in five years, the statistics do not bode well for landlords, who could see greater instability thanks to inflation and continued working from home, according to the report.

In the second quarter, Lee pegged the availability rate at 18.3% in Manhattan, while data from Newmark and CBRE further increase the borough’s availability rate.

“You’re not going to see higher availability since we’re tracking the stats, which go back to the mid-1990s,” said Jonathan Mazur, Senior Managing Director of Newmark. “While the Great Financial Crisis was a downtown Class A recession involving the financial sector, this downturn affects everyone in all markets, so it’s a bit more pronounced.”

The rental business wasn’t all bleak. The 15.5 million square feet leased in Manhattan in the second quarter represented a 34.2% increase over the same period last year, according to Lee’s report. Midtown led leasing in the borough with nearly 10 million square feet leased in the second quarter.

Downtown was a completely different story. The region saw just 550,000 square feet of leases signed in the second quarter, compared to an average of 2 million square feet per quarter before the pandemic, according to Lee’s report. Rental activity remained at a five-year low in the neighborhood, likely due to a lack of new Class A space in the neighborhood, CBRE said. Howard Fiddle.

A silver lining in the sinking Manhattan office market was class A buildings, which has proven to be attractive to tenants. Market rents for Class A space in the second quarter were $84.04 per square foot, less than $1 per square foot below the pre-pandemic quarterly average from 2017 to 2019, according to Lee. Meanwhile, rents for Class B and C spaces were still 9.4% lower than the pre-pandemic average, according to the report. Class B and C rents increased slightly from $56.20 in the first quarter to $56.22 in the second quarter.

But even within Class A buildings, the market is divided. Tenants showed a notable preference for trophy buildings in the second quarter, with the availability rate for such properties at 14.1% at the end of the second quarter, 4 percentage points below the Class A average, according to the Lee’s report. Both availability rates remained below the pre-pandemic average of 11.3%.

“For companies considering returning to the office, trying to recruit, or needing a more sophisticated space – I think that’s what’s driving the [demand for] trophy space,” said Sarah OrcutLee’s research director.

The other driver of demand for Class A space is the volume of it that has become available this year – from 453,000 square feet to 30 yards from Hudsonat 139,000 square feet 5 West Manhattanat 109,500 square feet at 225 Park Avenue Southaccording to the report

The glut of new space isn’t expected to slow down any time soon. About 10.6 million square feet of new office space is under construction across Manhattan, and the Far West Side, Meatpacking District and Flatiron District have all over 1 million square feet new product under construction, according to Newmark. All of these new offices, coupled with remote working, could push older properties to convert to other uses, Fiddle said.

“The pandemic situation, this concept that we don’t need office space as much, is something brand new,” Fiddle said. “Personally, I think you will see availability rates go down as more office buildings are reallocated to something else. And it’s not a magic bullet.

Celia Young can be contacted at [email protected].

Jose C. Birney