Manhattan office leasing underwhelms in November

On pace to finish 2023 well below last year’s total: Colliers

Full Month Passes With No Big Manhattan Office Leases Signed
620 6th Avenue and RXR's Scott Rechler(620 Avenue of the Americas, Getty)

The latest Manhattan office leasing report is no stocking stuffer for landlords. More like a lump of coal.

Leasing activity for November totaled 2.1 million square feet, down from about 2.6 million the previous month, according to Colliers. Its report covers the city’s biggest office markets: Lower Manhattan, Midtown and Midtown South.

Total leasing this year has already surpassed that of the first year of the pandemic — 2020 — and is on pace to outdo the second. But barring an unlikely jump in December, it will finish the year slower than 2022.

“There’s some confusion,” said Frank Wallach, the report’s author. “People think demand is lacking. But we’ve had nearly 24 million square feet of leasing activity this year; 24 million square feet in the first 11 months of the year is still something.”

Leasing numbers were up in October thanks in large part to two deals of more than 250,000 square feet, but November had no major signings. The largest leases of the month included several renewals: Dentons re-signed for almost 160,000 square feet at Rockefeller Group’s 1221 Sixth Avenue, and Palantir Technologies Inc. renewed for 140,000 square feet at RXR’s 620 Sixth Avenue. 

As demand moves sideways, it is being outpaced by supply. The Manhattan markets experienced negative absorption in November, meaning the amount of available office space increased.

Some tenants are choosing not to renew their leases while others are subleasing, which does not add to building owners’ bottom lines. Of the 97 million square feet of office availability in Manhattan, 21 million is sublet space.

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Wallach pointed to 1633 Broadway, where almost half a million square feet of space hit the market in the last month, much of it in sublease offerings. The 48-story, 2.5 million-square-foot tower is the largest and longest-owned asset in Paramount Group’s office portfolio.

There were nuggets of positivity in the report, especially in Midtown South, where RXR’s 620 Sixth Avenue retained two major tenants, including Palantir. Mobile banking app Current signed a direct deal with RXR after having subleased through recently bankrupt WeWork.

The Manhattan office market defies simple description, but a prevailing sentiment is that the newest, nicest buildings are faring best.

“Flight to quality is still very much a part of the narrative here,” Wallach said. “Whenever someone asks how the Manhattan office market is going, I say, Where are you standing? How old is the building you’re in?”

In Midtown, post-2000 buildings’ average availability rate is just 10.2 percent. For its pre-war buildings, it is 16 percent. In the Financial District, availability is 27 percent, which is one reason owners there are eyeing conversions to residential.

The flight to quality is also reflected in top-end rents. 

From Jan. 1 to Sep. 30, Manhattan had 23 deals close with starting rents north of $150 per square foot. In all of 2022, the borough had 24 deals above that threshold, the most since 2008.

Still, average asking rents decreased in November to $75.02, down from $75.40 last month. Wallach attributed the drop to several properties with above-average rent going off the market and new availability at less expensive properties.

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