Manhattan Leasing Activity Up, Still Below Pre-Pandemic Levels: Report

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Manhattan saw 2.35 million square feet of office space leased in July, marking the third month in a row that leasing increased. But, July’s total leasing volume was still almost 35 percent below the pre-pandemic monthly average volume of 3.58 million square feet seen in 2019, according to a new report from brokerage Colliers International.

The availability rate rose a tenth of a percentage point to 17.1 percent — the same record-high availability rate recorded just two months ago. Since the pandemic began in March 2020, Manhattan’s available office inventory has grown by more than 70 percent, to 92.13 million square feet, according to the report.

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“We are, interestingly, in a period of 2021 … where leasing activity [is] slowly beginning to increase,” said Franklin Wallach, senior managing director of New York research for Colliers. “But it’s still at the point where supply is outpacing the demand for a few different reasons. One of them is [the] millions of square feet of new construction/major renovation that’s scheduled to come on the market.” 

Below West 59th Street, there are 16 developments and renovations set for completion this year, ranging from 50,000 square feet to nearly 1 million square feet at GFP Real Estate and Northwind Group’s redevelopment of 100 Pearl Street, according to the report. Those are already seeing leasing, said Wallach. It’s the more than 25 million square feet of office space scheduled for completion in 2022 through 2024 that could become a temporary challenge to the market.

“That’s the largest amount of new inventory really since the 1980s,” Wallach said. 

Manhattan’s office market a few years into the future does come with a lot of unknowns, including how the pandemic will play out. Wallach said it was too early to tell how the Delta variant and other more contagious strains of the coronavirus will impact the office market moving forward. Some companies, like Google and Apple, have already pushed back their return-to-work dates due to concerns about the new strain.

Speaking of unknowns, Wallach said Manhattan’s sublet market is still changing each day. After three months of sublet supply tightening, it increased in July to its highest “post-pandemic” level at 21.16 million square feet. 

“It is fluid and it is a little bit of a day by day,” said Wallach. “Long term, [I’m] absolutely confident in the recovery and that [it] eventually will go down … I think it will be more clear as more people return to the office in the weeks and months ahead.”

Midtown was the only submarket Colliers measured that saw a decrease in leasing activity, which dropped 29 percent from June to July, and 60 percent from July of last year. Asking rents increased marginally to $78.95 per square foot — the first monthly increase since July of last year — even as the availability rate increased 0.2 percent to a new record high of 17.5 percent, according to the report.

But, Wallach was bullish on a Midtown recovery, citing its easy access to transportation; competitive asking rents now that more expensive submarkets, like Hudson Yards, exist in the city; and new construction in the area that might draw tenants on the hunt for a newer building.

Comparatively, Midtown South and Manhattan’s Downtown saw a stronger July. Downtown’s leasing volume experienced the biggest jump — leasing volume shot up by 72.3 percent since June and 85.7 percent year over year, the strongest month in a year and a half, according to the report. The growth was driven by just one lease” Fried, Frank, Harris, Shriver & Jacobson renewed 400,000 square feet of space at One New York Plaza, representing the largest lease in Lower Manhattan since the start of the pandemic.

Lower Manhattan’s availability rate, however, continued to climb for the 14th month in a row to 18.3 percent, a new record. Downtown’s average asking rent continued to decrease, to $58.80 per square foot, the lowest monthly average since 2016, according to the report.

Midtown South’s leasing volume grew just over 30 percent since June, but still saw record availability rates at 16.1 percent, according to the report. The strong leasing was driven by Cockroach Labs65,000-square-foot lease at 125 West 25th Street and Google’s 59,000-square-foot expansion at 85 Tenth Avenue

Midtown South also saw a number of office construction projects near their completion dates, adding to the already high amounts of available office space. Two of Klövern AB and GDSNY’s buildings, 205 West 28th Street in Chelsea and 1245 Broadway in the Garment District, are nearing completion, according to the report. The Broadway building will hold 181,000 square feet and the West 28th Street building will hold 96,000 square feet when the two are completed this year.

Celia Young can be reached at cyoung@commercialobserver.com