New York Office Leasing Dropped By Almost 50% In Q1
Office leasing in Manhattan has been shattering records over the last two years, but the swift spread of the novel coronavirus has stopped that rise in its tracks.
Following two strong years, leasing volume in the country's largest office market took a massive hit in the first quarter of the year, showing just how swiftly the global crisis has impacted the city’s real estate market.
A total of 4.5M SF of office space was leased in the first quarter of 2020, marking a nearly 47% decline from the 10-year quarterly average, per JLL figures released Monday. Colliers International's quarterly report pointed to a similar trend and noted the first three months of the year had the lowest leasing total in seven years.
Real estate industry players are trying to predict what the future may hold in uncharted territory. While many are looking back at the 2008 recession and the fallout of the Sept. 11 terrorist attack in the city for guidance, those events may not provide the most helpful context.
“[COVID-19] is hitting us at a time when we were on pretty good footing," CBRE Director of Research and Analysis for the Tri-State Region Nicole LaRusso said. "In 9/11 we were already in a recession … Similarly, rents were down by the time Lehman Bros. and Bear Stearns collapsed. Right now, we are taking extreme steps to minimize the health crisis, that has economic consequences — severe ones, as we are all finding out — but logic would tell you when the steps are reversed, the economy will be freed up.”
CBRE predicted the Manhattan office market could see a recovery similar to that seen in Asian economies following the 2002 SARS outbreak in a report released Monday. The declines there were sharp, but returned within one or two quarters, per CBRE. The report also noted that most real estate transactions are now paused, as tenants consider what space they will need in the future.
There have been few full cancellations of searches. Some tenants with lease expirations are now considering short-term options, per CBRE.
LaRusso acknowledged the unprecedented nature of the crisis makes it hard to predict just how the impact will be felt across the office market. While the job losses have reached extraordinary levels nationally — some 6.6 million people have filed for unemployment in the last two weeks — La Russo said many of those losses at this stage are in the hospitality and entertainment industries.
“I haven't heard of a lot of Manhattan's largest office occupiers laying off large numbers …[though] in the next several weeks, we might start hearing some of that,” she said. “We have many different industry sectors — that helps us. It gives the market a bit more stability."
Though the impacts of COVID-19 were only felt in the last few weeks of the quarter, it was enough to have an enormous impact on three months of data.
Just 1.2M SF was leased in Manhattan during March, per Colliers, compared to 2.1M SF in February and 3.6M SF in January. The average asking rent was $79.47 per SF, an increase of 3.8% from the year before.
Major leases of the quarter included Cantor Fitzgerald’s 208K SF renewal for space at 110 East 59th St. and 499 Park Ave. The biggest deal of the quarter was law firm Debevoise & Plimpton’s 530K SF lease at Tishman Speyer’s 66 Hudson Blvd.
In Midtown, leasing volume hit 2.96M SF, a 30% drop from the year before, while Midtown South decreased by 55.3% from the quarter before to reach 2.16M SF. In Lower Manhattan, the leasing volume decreased by 56.5% on the quarter before to hit 1.69M SF.
"The New York City office market has been tested numerous times over hundreds of years through wars, diseases, natural disasters, recessions and terrorist attacks,” Colliers International Senior Managing Director of New York Research Franklin Wallach said in a release. “Each time, the New York City market comes back stronger.”