Tenants gobbled up more than 33 million square feet of Manhattan office space in 2016, pushing leasing activity up 5.5 percent year-over-year, according to a new report from Colliers International. But even as large chunks of new supply came online, many big tenants chose to renew their leases and stay put, resulting in the market seeing negative absorption for the first time since 2009.
Demand was strong last year, with WeWork on a tear signing roughly 800,000 square feet of new leases and expansions and Swiss bank UBS renewing 900,000 square feet at RXR Realty’s 1285 Sixth Avenue, Colliers data show.
In fact, the 33.1 million square feet leased in 2016 was the third-highest total in the past 10 years, behind 37.38 million square feet in 2014 and the 33.92 million square feet leased in 2013.
But the four largest deals of 2016 were either renewals or sale-leasebacks. And even as tenants signed leases for new spaces in new buildings on the Far West Side and in Lower Manhattan, demand wasn’t able to keep pace with the available supply.
Net absorption for the year was negative 3.79 million square feet, according to Colliers. That was the first full year of negative absorption since 2009, when the figure dropped to negative 10.07 million square feet in the depths of the Great Recession.
The weak performance back then was driven by anemic demand and high sublet space. Now, the market’s fundamentals are far more robust, but Joseph Harbert, Colliers president for the Eastern Region, said that in 2017 there “will be significant pockets of opportunity for value-conscious tenants in the Manhattan market.”
The average asking rent in Manhattan was $73.24 per square foot at the end of 2016, up from $71.50 a foot the previous year.