Manhattan office leasing volume grew by 26 percent, according to a recent Colliers’ quarterly report. At 9.23 million square feet, the strongest quarterly volume since year-end 2019, office demand was 13.5 percent higher than Manhattan’s five-year rolling average (8.13 million square feet) and 11.5 percent above the 10-year average (8.27 million square feet).
Meanwhile leasing volume during the third quarter of 2022 was up 27.6 percent from the 7.23 million square feet of activity during the same timeframe in 2021. The year-to-date leasing volume total of 24.17 million square feet was an almost 50 percent increase over the 16.34 million square feet leased during the same period in 2021. If this pace continues for the rest of the year, 2022’s full-year leasing volume would surpass 2021’s full-year total (24.96 million square feet) by 29.1 percent, according to Colliers.
Manhattan’s FIRE (financial services, insurance and real estate) sector comprised a lot of leasing activity—47 percent—during the quarter. Within the FIRE sector, about 2 percent of the city’s third-quarter volume included leases by coworking companies. Meanwhile the TAMI (technology, advertising, media and information services) sector had the second-highest amount of office leasing volume at 21 percent. The professional services sector made up the third-largest share of office leasing activity (18 percent).
Manhattan asking rents drop
While office leasing activity in Manhattan is on the rise, the average asking rent price fell a bit, 2 percent, after three consecutive quarterly increases, according to Colliers. Average asking rent average also fell in the Midtown, Midtown South and Downtown areas of Manhattan. It was the first time since the fourth quarter of 2020 that asking rent dropped in all three major markets. Colliers attributed the decreased pricing to above-average priced large blocks of space leased and removed from the available inventory. The firm noted that this was especially true in new construction/major renovations and other Class A buildings.
Asking rent average fluctuations are not a new occurrence in Manhattan. The recent drop still leaves the average 1.8 percent higher since September 2021, but lower by 6.8 percent since March 2020. Additionally, the average in Class A product ($79.49/SF) was lower by 2.4 percent since June 2022. The Class B product ($65.20/SF) also decreased for the first time since Q1 2021 and the Class C inventory ($52.90/SF) was cut by 0.9 percent.
Manhattan office vacancies drop slightly
The third-quarter office space availability rate registered at 16.4 percent, a modest 0.8 percentage points down from the quarter before. It marks the sharpest quarterly percentage point decrease since Q3 2014 and the tightest availability since March 2021, according to Colliers. Meanwhile, availability fell 0.4 percentage points year-over-year.
And although Manhattan’s availability rate dropped from the record-high of 17.4% in February 2022, available supply has still gone up by almost 65 percent since March 2020, totaling 88.61 million square feet. Meanwhile, the city’s sublet availability followed a similar pattern; availability decreased by 0.40 million square feet during Q3 2022 to a total of 20.06 million square feet. Despite sublet availability falling below the COVID-19 pandemic peak in July 2021, Manhattan’s total sublet availability is still almost up 70 percent since March 2020.
On a more optimistic note, Manhattan’s net absorption during the third quarter of 2022 was a positive 4.13 million square feet. Overall, absorption since March 2020 totaled negative 34.76 million square feet, but Manhattan recorded 1.83 million square feet of positive absorption over the last 12 months.
Investments in Manhattan office space falls
Office investment sales volume dropped in New York City during the third quarter as recession fears and rising interest rates weighed on capital markets. There was just $1.2 billion in sales volume in the quarter bringing activity down 71 percent, year-over-year. Despite market volatility, several large trades occurred during the quarter; RXR and Blackstone’s pending disposition of 1330 Avenue of the Americas to Empire Capital Holdings for $325 million and SL Green’s sale of a 414,000 sq. ft. office condominium at 885 Third Avenue to Memorial Sloan Kettering for $300 million, which is currently in contract.
“Demand greatly outpaced supply during the third quarter and flight-to-quality was a key driver,” said Franklin Wallach, Executive Managing Director of Research & Business Development, New York at Colliers. “Additionally, numerous pockets of the market made significant gains in chipping away at the excess supply. However, this was not observed in all Manhattan neighborhoods, and with nearly 35 million square feet of negative absorption since March 2020, the demand must remain strong in order for availability to eventually return to equilibrium.”