Manhattan offices continue struggle as downtown hits new low

Manhattan’s office market continued its struggle into the summer, hovering around record vacancies.

Leasing volume fell 3.9 percent in the second quarter to roughly 7.3 million square feet of office space, according to Colliers quarterly data reported by Crain’s.

The vacancy rate in Manhattan for the second quarter was 17.2 percent, a slight improvement from the previous period. It was an increase year over year, however, and not far off from February’s record 17.4 percent vacancy rate.

Colliers executive managing director Frank Wallach (LinkedIn/Frank Wallach)

“Manhattan’s availability rate still poses a barrier to a true recovery with direct and sublet inventory continuing to increase in some corridors, creating value-play opportunities for tenants,” said Frank Wallach, an executive managing director at Colliers.

As more companies embrace the reality of remote work, demand for office space simply isn’t meeting supply, which has surged 72.2 percent since the start of the pandemic.

There are positive signs if you look for them. Leasing activity is up from 2021; 15 million square feet have been leased in the first half of the year, compared to 9.1 million square feet in the first half of 2021. Net absorption was 530,000 square feet in the second quarter, putting a small dent in the negative 38.9 million square feet of absorption since Covid came.

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Additionally, landlords are snagging slightly more bang for their buck in recent months. The average asking rent rose for the third straight quarter, hitting $75.61 per square foot and seeing increases in three straight quarters for the first time since 2019. Still, the average asking rent is down nearly 5 percent from the start of the pandemic.

The struggling office market is being felt the most downtown. The vacancy rate in the submarket has increased for nine straight quarters and reached a record 20.1 percent in the second quarter. On the other side of the spectrum, the Midtown vacancy rate had its biggest quarterly drop since 2018, falling to 16.4 percent.

Office owners may have more bad news on the horizon. Rising interest rates are threatening property values and the office index from the stock market is plummeting as recession fears grow.

[Crain’s] — Holden Walter-Warner