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Things may finally be looking up for Manhattan’s embattled office market — but not all of it.
The vacancy rate climbed to 17.3 percent at the end of last year — up by one-fifth from 2020 — but leasing activity accelerated over the year, rising 60 percent in the third quarter and ending the year at more than twice the pace of the fourth quarter of 2020.
Net absorption was still negative, at nearly -2.3 million square feet for the final quarter, but that represented a more than 78 percent improvement from a year earlier, according to data from Colliers International. The third quarter of 2021 actually saw the first positive net absorption in two years, which may help explain office landlords’ uncanny optimism.
Among Manhattan’s three major office submarkets, Midtown was the only one with positive net absorption for the year. It also had the most leasing activity in the last quarter of 2021, inking deals on nearly 4.8 million square feet. That’s over 22 percent more than Midtown South and Downtown combined.
Midtown also commanded higher average asking rents than those two submarkets last year, but that figure declined by nearly 3 percent from the year before. Midtown South made up ground as asking rents rose more than 12 percent over the same period, and its vacancy rate was slightly lower than Midtown’s.
Conditions varied wildly throughout Manhattan’s office submarkets, with some surging while others had an even worse year than in 2020.
The Times Square submarket boasted Manhattan’s highest net absorption in the fourth quarter at more than 1 million square feet, though that was a drop of more than 158 percent from 2020. Hudson Yards, which had the highest net absorption in 2020, saw that figure plummet by a staggering 2,940 percent last year to nearly negative 2 million square feet — the lowest in all of Manhattan.
The prize for most improved net absorption goes to the City Hall area. Its total improved a whopping 4,679 percent to finish the year at nearly 46,000 square feet.
Hudson Yards had the second highest fourth-quarter vacancy rate at nearly 23 percent, up more than 181 percent from the end of 2020 — the steepest rise in Manhattan. The Financial District ended 2021 with the highest office vacancy rate of all, 25.6 percent, up by three-quarters from the year before. The U.N. Plaza area had the lowest vacancy, at 6.6 percent, followed by Greenwich Village at 9.5 percent.
Hudson Yards did score the highest overall asking rent at $134.24 per square foot — a 13 percent increase over 2020, which was the second biggest hike in Manhattan. That could help explain its plunge in net absorption, although a drop was inevitable after the submarket’s big 2020. The biggest year-over-year rise in overall rent came in the Hudson Square area, where average rents went up by nearly 17.5 percent — though only to $82.73.
The biggest drop in overall asking rent was in Tribeca: down by 10.61 percent to $81.27 per square foot. Tribeca did have the city’s highest rent for Class A space, commanding $159.73 per square foot — though that was down nearly 9 percent from 2020.
Leasing activity in the fourth quarter of 2021 also varied widely across neighborhoods. The Times Square submarket’s high absorption figure came on the strength of its robust leasing volume, closing deals on nearly 2 million square feet of space in the last three months of the year — up 468 percent over the same period of 2020.
The biggest increases in fourth-quarter leasing last year came in Chelsea, up 881 percent, and the World Trade Center area, up 811 percent. There were only two Manhattan submarkets where leasing actually fell year-over-year, and the drops were precipitous. The Financial District saw 61 percent less leasing and Murray Hill saw a plunge of more than 78 percent.
Spending on office building purchases totaled just over $4.7 billion last year, according to Ariel Property Advisors, down 8 percent from 2020. But Covid-hindered 2020’s figure included several large deals that actually got started in 2019, before the pandemic, such as German insurer Munich RE’s $900 million acquisition of the 330 Madison Avenue office tower.
The biggest building sale last year was an office deal: CommonWealth Partners paid just over $1 billion for the Hudson Commons building at 441 Ninth Avenue in December, the largest investment sale in the city since June 2019. In fact, office properties dominated 2021’s top 10 list of investment sales.