The pandemic-driven downturn in Manhattan’s office market hit an inflection point in the third quarter, with demand finally exceeding supply.
Leasing volume from July to September jumped to a total of 7.23 million square feet, up by 58.8 percent compared to the second quarter. With that, the quarterly net absorption turned positive — for the first time in two years — at 0.87 million square feet, according to Colliers International’s quarterly market report.
Franklin Wallach, Colliers’ senior managing director of research in New York, called this moment the “critical milestone” in the market’s post-pandemic recovery. But he also cautioned the market still faces a long road to recovery.
Looking back at the past 18 months, the net absorption remains negative at 36.6 million square feet. (To put the size into perspective, the entire Downtown Los Angeles office market is 35.44 square feet.) Additionally, more supply is scheduled to enter the Manhattan market in the coming months, “creating pressure on this healthy demand to not only continue, but increase,” he said.
The quarter’s largest new leases included French international banking group Crédit Agricole’s 167,000-square-foot relocation within the Paramount Group’s skyscraper at 1301 Sixth Avenue and global accounting firm BDO USA’s 143,000-square-foot lease at Tishman Speyer’s 200 Park Avenue, both in Midtown.
The total leasing volume was also boosted by mega-renewals, including 514,000 square feet by the advertising giant Interpublic Group of Companies at Vornado Realty Trust’s 100 West 33rd Street in Midtown South; 400,000 square feet by law firm Fried, Frank, Harris, Shriver & Jacobson at 1 New York Plaza — which is owned by Brookfield, Chinese sovereign fund China Investment Corporation, and AEW Capital Management — in the Financial District; and 313,000 square feet by the City of New York at Piedmont Office Realty Trust’s 60 Broad Street, also in FiDi.
Manhattan’s sublet availability shrank by 0.86 million square feet to 19.94 million square feet, or 22 percent of the borough’s total availability. Sublease inventory in the third quarter was down 5.7 percent compared to the pandemic peak of 21.14 square feet in the first quarter, though it’s still about 2.5 times the pre-pandemic amount of approximately 8 million square feet.
The tightening of the market in the third quarter prevented Manhattan’s asking rent from a further decline. The average asking rent for the quarter was $72.74 per square foot, down less than 0.1 percent from the second quarter. The average, however, was the lowest quarterly average since 2017.