Manhattan office leasing had some unexpected bright spots

It’s been a slow year for Manhattan office leasing, but Colliers’ latest office leasing report shows there have still been a few bright spots. 

Leasing activity jumped by 27 percent from the third quarter to 8.23 million square feet, marking the strongest quarter since Q3 of 2022 and finishing well above the borough’s five year rolling average. 

But the office market still has a long way to go before it’s truly recovered. Total leasing activity for the year finished 6 percent below 2022, with 27.25 million square feet. The office availability rate is still at a record high and up 5 percent over the last year, with 96.5 million square feet of available space. 

“It’s certainly moving in an encouraging direction,” said Colliers’ Frank Wallach, the author of the report. “But we have not yet achieved the key paradigm shift where demand is continually outpacing supply.”

Still, the office leasing market is no monolith, Wallach emphasized. The health of the market depends on two key factors: the location and age of the building. 

“There have been signs of supply stabilization and, in certain areas, even tightening supply.”

The strong quarter was due in part to a single record-setting lease, which made up more than 10 percent of the borough’s total for the period. 

Law firm Paul, Weiss, Rifkind, Wharton & Garrison signed a 20-year lease for 765,000 square feet at Fisher Brothers’ 1345 Sixth Avenue in mid-December. That deal was the largest office lease in the country for 2023 and the largest in New York in four years. 

The law firm will be moving just down the street, as it currently leases 550,000 square feet at 1285 Sixth Avenue, Scott Rechler’s RXR’s Midtown property.

The Paul, Weiss lease was a great way for Midtown to finish up 2023, as the neighborhood saw its strongest quarterly leasing volume in two years. In fact, Midtown’s 2023 leasing total of 15.25 million square feet was its best full-year number since 2019. 

Downtown put in a similarly strong performance, with its highest leasing total since 2019. The City of New York’s 538,000-square-foot extension at 150 William Street comprised about 40 percent of the neighborhood’s activity in the fourth quarter. 

While both neighborhoods had good years, they are still at two distinct positions in their recovery. Midtown finished the year with 15.9 percent availability, a full five percentage points better than Downtown’s 20.9 percent. 

Midtown South was the only one of Manhattan’s three major office markets to underperform in 2023 compared to 2022. But the neighborhood still had a strong fourth quarter with 2.21 million square feet, its most active quarter since Q3 2022.

Manhattan’s asking rent ticked downward by 0.6 percent for the quarter to $74.81 per square foot, as a handful of large, below-average priced spaces became available and some above-average price blocks were taken off the market. 

Two notable instances of the latter came in Midtown South. First, Wells Fargo purchased 377,000 square feet at 20 Hudson Yards from Related Companies and Oxford Properties Group in late September, though that block of space was counted in the fourth quarter report. At the Flatiron Building, 204,000 square feet officially came off the market, as The Brodsky Organization announced it would convert the historic office building to residences. 

The sectors behind most Manhattan leases have remained unchanged. The FIRE industries (financial services, insurance and real estate) led the way with one-third of the activity. Professional services came in a close second at 26 percent, while the public sector and consumer goods/retail industries tied for third, with 12 percent.

“This strong activity in Q4 does bring us into 2024 with an encouraging start,” Wallach said. “But it’s still a challenging market.”