Manhattan Office Leasing Is Up, But With Caveats

Collier’s latest office leasing report would seem like a breath of fresh air for Manhattan’s beleaguered market.

Leasing activity jumped 26 percent from the second quarter while demand more than doubled in Lower Manhattan and grew by 43 percent in Midtown South.

But there’s a caveat for most of the positive metrics. The most important one shows that a hard truth still remains: Available office space is at an all-time high of 19.4 percent. The report covers Lower Manhattan, Midtown and Midtown South.

No three-month period will turn things around, said Frank Wallach, the author of the report.

“There will not be one quarter that gets the market from challenged to recovered,” he said. “This will be a process in the market absorbing the additional 43 million square feet of excess space. That’s the size of the entire Financial District.”

One grain of salt in the data is that more than a fifth of the jump in leasing activity came from just two leases, and without them leasing demand would have been flat.

Davis Polk and Wardwell signed a 710,000-square-foot extension and expansion at 450 Lexington Avenue, and the city government leased 641,000 square feet at 110 William Street.

Metrics in individual submarkets are also bucking post-pandemic leasing trends, but again, there are caveats.

Midtown and Midtown South have been a bright spot for the leasing market as a result of the “flight to quality” — companies upgrading to better Class A space. But Midtown South’s availability hit a new all-time high with an 18.6 percent jump, seemingly defying the pattern.

Much of the jump can be attributed to new construction coming on line, namely at 360 Bowery and 375 Hudson. Colliers deems Canal Street the southern border of Midtown South.

“It’s a good representation of what has been driving the increase in supply, and not just over the last couple of years,” Wallach said. “Three key factors often drive the increase in supply: blocks of new construction that enter the pipeline, blocks of sublet space, and anticipated — and sometimes unanticipated — vacant blocks based on tenant relocations or tenant expiration.”

Activity in Lower Manhattan more than doubled quarter-over-quarter and is up by 16.2 percent in the past year. However, the gain was driven by three leases —the city’s at 110 William and its extension 255 Greenwich Street, and the Tower Research Capital’s new, 122,000-square-foot lease at 120 Broadway.

The industries driving leasing activity remain largely unchanged. Financial services, insurance and real estate firms accounted for 31 percent of activity, followed by the public sector (23 percent) and the professional services industry (22 percent).