Manhattan Office Leasing Drops 40% in January

Office tenants signed 2.25 million square feet of deals in January compared to 3.72 million square feet signed in December. 

January wasn’t far behind 2023’s monthly average leasing volume of 2.27 million square feet, but it was sluggish compared to the 4.43 million square feet signed in January 2023. 

Volatility around this time of year is typical, and December saw a string of blockbuster deals that are hard to match, said Frank Wallach, Colliers’ executive managing research director. 

“Almost like clockwork, you see a big uptick in activity in the final weeks of December,” Wallach said.

“It’s often driven by the larger deals that have been in the works for a while, months sometimes,” Wallach added. “If it seems like they’re relatively close to closing in the fourth quarter, then there’s a rush to be done before the end of the year so it’s off everyone’s desk.”

But sometimes, the end-of-year fever spills over into January, and that’s what happened last year.

“I’ve been doing this for 15 years, and sometimes the January activity includes these mega deals that close in the first few days of January,” Wallach said. “Those are always fun to see, and I think January 2023 was one of those examples.”

But this January did have some bright spots. Law firm King & Spalding signed the largest lease in Manhattan last month to relocate from 169,000 square feet at 1185 Avenue of the Americas to 175,000 square feet at Vornado’s 1290 Avenue of the Americas. 

The move barely expanded the firm’s footprint, but it’s representative of the legal sector’s increasing role in Manhattan’s office recovery.

Luxury jeweler David Yurman’s renewal and expansion to 150,000 square feet at Hudson Square Properties’ 200 Hudson Street was the second-largest deal of the month. David Yurman tacked on an additional 32,200 square feet.

A glut of supply continues to spur anxieties about a pending office market “doom loop.” And so far, 2024 hasn’t moved the needle much.

The borough’s office availability rate remained at a record high of 17.9 percent, and there’s still some 20.4 million square feet of sublet space on the market, a hefty amount even though it dropped 1.4 percent year-over-year. It still remains 71.3 percent higher than it was in March 2020.

“We are still at a point where demand has yet to recover to the pre-2020 levels,” Wallach said.

Manhattan’s office market absorption was negative 140,000 square feet in January, a yearly gain of 5.9 percent. Available supply has grown 79.4 percent since March 2020. 

The office sector’s challenges have taken a toll on asking rents, which fell 0.2 percent from December to January to an average of $74.64 per square foot.

Wallach said he’s keeping his eye on the flight-to-quality trend that continues to drive leasing activity.

King & Spalding’s new lease last month was one of “several deals that I think really speak to the validity of flight-to-quality,” Wallach said.

“It doesn’t drive the entire market,” he said. “No, but it is still a key element of what’s driving the limited demand in the Manhattan office market.”

Abigail Nehring can be reached at anehring@commercialobserver.com.