Manhattan’s office leasing activity in July was the strongest since January, but that doesn’t mean the market is on its way to recovery.
Leasing volume last month was 2.39 million square feet, nearly six times more than the volume in June when only 0.42 million square feet was leased. However, July volume was less than half of the 5.17 million square feet leased a year ago, according to a report by Colliers International.
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Notably, 71 percent of July leasing was driven by renewals, including several short-term extensions — a complete reversal from last year as a whole, when 71 percent was new leases and expansions.
Some major renewals — including NBCUniversal Media’s 334,000-square-foot lease at 1221 Avenue of the Americas and Stroock & Stroock & Lavan’s 192,000-square-foot lease at 180 Maiden Lane — were short-term, meaning less than five years, said Franklin Wallach, Colliers’ senior managing director for New York research.
Such deals typically mean a tenant is unsure about its future needs or hopes to “revisit the situation a year or two later if they think the situation is going to be more in their favor,” Wallach said.
Another sign of caution: Office availability in July reached its highest point since 2014 at 11 percent, up 0.4 percentage points from June and 1.5 points from a year ago.
“Supply was still outstripping demand,” Wallach said. “So that’s an indicator that the market is still impacted.”
And net sublet availability went up by nearly 1 million square feet, reaching 22 percent of total availability. Wallach said if the figure is less than 20 percent, the market is considered healthy.
“When it’s 20 to 25 percent, there’s some yellow warning light. You keep an eye on the situation. When it is north of 25 percent, you have a glut of sublet space,” Wallach said. “That usually puts downward pressure on pricing because it competes with direct space that landlords are marketing.”
Monthly absorption was negative 2.25 million square feet, and the average asking rent went down by 0.4 percent since June to $79 per square foot.
One noteworthy new lease in July was by American International Group for 218,000 square feet at 28 Liberty Street, according to the report. The lease is part of the insurance giant’s effort to relocate its headquarters from 175 Water Street.
Contact Akiko Matsuda at akiko.matsuda@therealdeal.com
Correction: This article has been revised to show that new office leases an expansions accounted for 71 percent of the market’s activity in 2019 as a whole, not in July 2019.