As I arrived home from a business trip last week, two things hit me: One, it’s time to write a third-quarter review for the Manhattan office market, and two, the leaves from the big tree in the front of my house have started to fall and I know how I will have to spend my weekend.
But for now, the leaves will have to wait.
One of the biggest takeaways of the third quarter is falling vacancies in Manhattan, as the vacancy rate dropped 20 basis points to 9 percent—the lowest rate since August 2016. After reaching a high of 9.5 percent in April this year, the vacancy rate steadily declined due to strong leasing activity, up 14.4 percent year-over-year. New leasing activity registered more than 8.1 million square feet in the third quarter, which brought the total as of the end of September to nearly 23.5 million square feet.
The vacancy rate reduction in the third quarter was widespread throughout the borough with declines in all three major markets (Midtown, Midtown South and Downtown) and 13 of the 20 Manhattan submarkets. The Midtown vacancy rate dropped 20 basis points to 9.6 percent and was down 40 basis points from a high of 10 percent in March. Six of the nine submarkets posted falling vacancies, while Madison/Fifth, East Side/U.N. and Times Square South had vacancies rise.
Demand in Midtown remained robust with nearly 5.3 million square feet leased in the third quarter. This was fueled by three new leases each exceeding 200,000 square feet and keeps the leasing levels 8.9 percent ahead of 2016’s pace.
Midtown South vacancy rate fell 10 basis points to 7.3 percent in the third quarter, down from a high of 8 percent in April. Three of the five Midtown South submarkets had falling vacancies, while Soho and Greenwich/Noho posted vacancy increases. The bulk of the decline was due to a drop in available sublease space, which was down 16.7 percent from the second quarter. Demand remains tepid in Midtown South, as leasing activity is 2.5 percent below levels recorded one year ago.
Downtown vacancy has been falling all year and dropped another 20 basis points in the third quarter to 8.7 percent. Four of the six Downtown submarkets had vacancy declines, while one, World Trade, remained stable and Tribeca posted the market’s only increase. Demand remained stellar in Downtown with nearly 1.7 million square feet of new leasing activity in the third quarter, bringing the year-to-date total to over 4.8 million square feet.