Midtown megadeals fail to spark Manhattan office comeback

Major renewals in January helped Q1 leasing surpass brutal Q4, but vacancies still piled up

(Photo Illustration by The Real Deal with Getty)
(Photo Illustration by The Real Deal with Getty)

Manhattan’s office market began the year by rebounding from a dreadful fourth quarter of 2022, but that was about where the good news ended.

Tenants took 7.4 million square feet of office space in the first quarter, a 49 percent increase from the fourth quarter, according to a Colliers report released Monday, but still about 270,000 square feet short of last year’s first quarter. Net absorption was negative 1.2 million square feet and average asking rents declined in all three submarkets tracked by the report.

What’s more, the uptick in leasing was largely driven by just five large deals that accounted for nearly a third of leasing volume. Those transactions primarily occurred in January, before deal volume slowed in February and March, and mostly involved tenants renewing or extending existing leases.

Midtown was the only market to see leasing volume increase year-over-year, but nearly half of that volume came from just a few deals recorded in January: Fox and News Corporation’s combined 1.1 million-square-foot renewal at 1211 Sixth Avenue, and two leases signed by Ken Griffin’s Citadel at 350 Park Avenue and 40 East 52nd Street.

Overall, Manhattan’s office leasing volume was more than 6 percent below the borough’s five-year rolling average of 7.9 million square feet and 11 percent below its ten-year rolling average of 8.3 million square feet.

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The average asking rent declined by 1.3 percent to $74.42 a foot. Quarterly declines were consistent across Midtown, Midtown South and Downtown, as well as Class A, B and C buildings. Midtown’s average asking rent dropped to $78.35, its lowest since June 2015, although Midtown South, specifically, did see its average increase year-over-year, from $79.95 per square foot in the first quarter of 2022 to $80.33 now.

Manhattan’s availability rate increased for a second straight quarter, climbing 0.2 percentage points to 17.1 percent. Midtown South reached a record high of 17.2 percent.

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FIRE and TAMI tenants accounted for more than 70 percent of office leases signed in Manhattan last quarter. While that trend was consistent in Midtown and Midtown South, tenants in professional services and the public sector made up close to 60 percent of Downtown office leases.

Investors remained mostly on the sidelines too. Only five deals for office properties were recorded in the quarter, totaling $980 million — an 85 percent year-over-year decline. Among the deals that did occur were Brookfield buying out Blackstone’s minority stake in One Liberty Plaza at a $1 billion valuation and Pearlmark’s forced sale of Tower 56 at 126 East 56th Street for $110 million.