Manhattan Office Market Improves, but There’s Still Plenty of Space Available

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The Manhattan office leasing market has once again notched its most successful month of leasing since January 2020, the pre-pandemic benchmark for a recovery, but there’s still plenty of space available in the borough’s key submarkets, according to October data released by Colliers International.

The brokerage found that 2.7 million square feet of office space had been leased in October, up 10.8 percent from September and 52.9 percent from October 2020, when 1.8 million square feet was leased.

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However, some office market metrics are trending in a negative direction on a year-over-year basis. Average asking rents in Manhattan are down — from $76.20 per square foot a year ago to $73.66 last month — and availability is up from 12.9 percent in October 2020 to 17 percent in October.  

“Demand is picking up but there’s all these massive blocks of supply that are still being added to the market,” said Franklin Wallach, a senior managing director for research at Colliers. 

He pointed to buildings like 2 Manhattan West and 66 Hudson Boulevard, a.k.a. The Spiral, hitting the market in Midtown South and driving up asking rents there. Wallach also argued that some of the large blocks of space that have come up for rent recently were not caused by the pandemic, but were instead opened up by tenants migrating from Midtown to other markets, including Midtown South and Downtown. 

However, Class B and C space coming back online have depressed asking rents in other submarkets. Wallach noted that 4 million square feet of former flex coworking space has returned to the market since March 2020, usually after the operator and the landlord struck a deal to surrender the space before the end of a lease. 

And it’s possible that the office availability rates in Manhattan could increase even more in the coming months. Wallach pointed to buildings such as 60 Wall Street, 660 Fifth Avenue and One Madison Avenue, all of which are under renovation after losing their anchor tenants. 

“There are still large blocks that we’re expecting to enter the availability rate in late 2021 and early 2022, unless there’s some significant leasing activity that would take those spaces off the market,” he explained. “Will there be strong enough demand to have positive absorption and tightening availability?” 

January 2020 represents the pre-pandemic benchmark for the Manhattan office market, Wallach said. Roughly 3.5 million square feet of space was leased that month, and that was true for the entirety of 2019. Whenever the market returns to that level of leasing, then things will be, essentially, back to normal, according to Wallach. 

Rebecca Baird-Remba can be reached at rbairdremba@commercialobserver.com.