Leases  ·  Office

Thank Bloomberg for a Rosy Month of Manhattan Office Leasing

reprints


Manhattan’s office market is showing signs of its old steely edge, with just under 3 million square feet of deals signed in May, according to a report by Colliers (CIGI).

May’s total leasing was up from the 2.7 million square feet signed the previous month and a 70 percent jump from 1.7 million square feet signed during the same period last year, the report found.

SEE ALSO: Prologis Bullish on Data Centers and AI

But a quick check under the hood shows more than a third of that volume came from just two Midtown tenants.

Bloomberg’s 946,815-square-foot renewal at Vornado’s 731 Lexington Avenue — a one-of-a-kind deal that came with a lot of concessions — was the largest office lease last month, and it single-handedly accounted for nearly 50 percent of the total volume in the Midtown submarket.

That blockbuster deal was nearly four times the size of the second-largest lease signed in May, Bain & Company’s 235,201-square-foot deal at 22 Vanderbilt.

Bloomberg and Bain boosting the office market is not necessarily a bad thing since it’s not unusual for one or two deals to tip the scale on a month-to-month basis, according to Frank Wallach, executive managing director of research for Colliers’ New York office. 

“As has always been the case in Manhattan, a few megadeals will move the needle,” Wallach said. “In the battle between supply and demand, the bar is different during every period. You could have a period of very strong leasing activity, but if there are numerous blocks of space that join the market, it can outpace demand.”

That was the case last month, with about 316,000 square feet of office space hitting the market after several tenants decided to “get out of Dodge” at 1221 Avenue of the Americas, according to Colliers. And new construction added 173,000 square feet to the market at the nearly complete 125 West 57th Street, one block south of Central Park.

The result was positive absorption in Manhattan, with demand outweighing supply by about 450,000 square feet during May, according to Colliers.

However, the nation’s largest office market still has a long way to go before availability drops back down to the 42.6 million square feet that was available in March 2020, before the COVID-19 pandemic sent the office market off script. Landlords are still looking to fill 96.5 million square feet of available office space in May, according to the report. 

Meanwhile, Wallach is keeping his eye on some notable differences between the Midtown, Midtown South, and downtown submarkets.

“Downtown has struggled over the last 75 years during challenging markets,” Wallach said. “It usually has the biggest increase in supply and takes the longest to recover.”

And that seems clear from the latest data, with leasing volume downtown dropping more than 50 percent year-over-year, to just 151,583 square feet last month.

“Tenants are looking for flight-to-quality opportunities in Midtown,” Wallach said. He noted Midtown’s proximity to mass transit hubs such as Grand Central Terminal and Pennsylvania Station is another reason for its popularity.

But Lower Manhattan has proven its ability to adapt to the winds of change. Wallach pointed to office-to-residential conversions taking place at 111 Wall Street and 55 Broad as signs that Financial District landlords are embracing the neighborhood’s shift toward a live-work neighborhood.

“Those did play a role in helping to absorb some of the space,” Wallach said. “There’s still a way to go for downtown demand to catch up to, and once again surpass, the supply. But it has before.”

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