Manhattan Office Leasing Improves in July, But Not Enough to Save 2023
Manhattan’s office market had its best month of the year in July, but overall leasing remains extremely lackluster compared to pre-pandemic metrics, according to Colliers (CIGI)’ July market report.
Office leasing activity grew by more than 20 percent last month, to 2.3 million square feet. However, with so few traditional office tenants looking for space, more than a quarter of the monthly leasing volume came from a single lease: a city agency taking 640,744 square feet at 110 William Street in the Financial District.
Not surprisingly, the Financial District had its strongest month of leasing since December 2019, but 70 percent of the square footage leased came from the 110 William deal. Midtown, meanwhile, had no such luck, with leasing volume falling 20 percent since June and more than 50 percent year-over-year, according to the report. The largest lease in the area was again a government deal, Empire State Development at 655 Third Avenue.
“Even though the activity for Manhattan overall was the highest since January, we are still in a place where demand will need to continue to increase throughout the year if there’s any chance of leasing activity exceeding 2022,” said Franklin Wallach, the executive managing director for research at Colliers.
Tenants leased 18 million square feet in the first seven months of 2022, compared to just under 15 million square feet from January to July 2023. If the current leasing trends continue, the amount of office leased in 2023 will decline 12 percent from 2022’s full-year total, Colliers said.
The level of office availability still remains high, at just shy of 18 percent, compared to a pre-pandemic benchmark of around 10 percent. The amount of vacant office space in Manhattan has ballooned 80 percent since March 2020, but that figure has only risen 5 percent in the last 12 months.
“We would need to see several consecutive quarters of demand matching or outpacing supply” in order for the office market to normalize, said Wallach. Sublet office supply remained stable in July, decreasing by 58,000 square feet to 21.3 million square feet of space up for grabs.
Average asking rent across Manhattan remained essentially flat in July, at $75 per square foot, which is still 5 percent lower than in March 2020. Asking rents in Midtown ($79), Midtown South ($82), and Downtown ($58) were also the same as the month before.
The only reason asking rents have remained relatively stable over the past three years is that landlords have been offering companies lavish tenant improvement allowances and months of free rent, in order to prop up their asking rents, according to Wallach. The amount of tenant improvement allowances and free rent has surged many fold since the 2008 recession. Back then, office asking rents dove about 25 percent, said Wallach.
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