Manhattan Office Availability Jumps to 18 Percent: Report

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Manhattan office availability jumped to more than 18 percent in the second quarter of this year, despite a decline in available sublease space, according to Savills’ second-quarter report. 

The borough’s overall availability rate stands at 18.4 percent — a far cry from the 11.5 percent rate in the first quarter of 2020. SoHo ranked as the neighborhood with the highest availability rate in the city.

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The glut of sublease space had previously driven the spiking availability in the market, but, this time, direct availability jumped even as tenants started to pull sublease space off the market, according to the report.

Leasing, however, has increased 21.8 percent from the first quarter as the city’s businesses signed 4.9 million square feet of leases — the highest quarterly total since the start of the pandemic. 

The top 10 largest deals ranged from the Legal Aid Society’s 198,900-square-foot, 30-year lease at 40 Worth Street to luxury reseller Fashionphile’s 10-year, 60,000-square-foot lease at RXR Realty’s Starrett-Lehigh Building at 601 West 26th Street.

While the increasing number of leases being signed might warrant some optimism, the city still has a long way to go before the office market returns to normal, the report said.

“Still, demand volume remains well below a typical pre-pandemic quarter,” the report said. “With new supply continuing to grow and availability edging closer to 20 percent, it is unlikely that the market will see a rebalance of supply-demand until late 2022 or beyond.”

Asking rents continued to fall into the second quarter to $75.60, an 8.8 percent decrease year over year. But taking rents for Class A buildings increased year over year, a reason to believe tenants are seeking out high-end buildings and spaces, Savills’ report said. 

Tenants are also relocating more, rather than staying in their current property, the report said. Seven of the 10 largest transactions in the second quarter were relocations.

And Savills’ outlook on the Manhattan market was not particularly optimistic. Effective rents will continue to decline as tenants face a “staggering” number of options, according to the report. And millennials moving out of the city might increase demand in different locations. 

“Shifts in demographic patterns, particularly the fact that millennials have been buying homes in suburban locations at a fast clip, could result in stronger demand for transit-proximate locations (Grand Central, Penn Station) over those with a ‘cool’ factor (Midtown South),” the report said. 

Celia Young can be reached at cyoung@commercialobserver.com