New NYC Office Demand Craters Despite Leasing Activity Hitting New Highs
New demand for office space in New York City fell for the third consecutive month in August, dropping by 23% compared to the month prior, according to new data from real estate software firm VTS.
Demand for office space in NYC has reached its lowest level since February 2021 and is now 44% below its pre-pandemic pace, according to VTS.
Nationally, demand for office space fell by 11.5% from July to August, but New York had the biggest drop of any city. Los Angeles saw a 14% dip in demand, while Seattle recorded a 13.7% decline.
“A summer slowdown is typical for office demand, but what remains to be seen is if this downward trend will continue or if we’re simply settling into a new ‘post-pandemic normal’ for office demand levels,” VTS CEO Nick Romito said in a statement. “Economic concerns, particularly around inflation and rising interest rates, have created a cloud of uncertainty that’s hanging over the office leasing market.”
The number of new tenants seeking office space overall is less than half the number seen prior to the pandemic, in 2018 and 2019, according to VTS.
Despite the drop in new demand, August was the best month since the start of the pandemic for Manhattan office lease signings, according to Colliers. Nearly 3.4M SF of office space was leased in the borough in August — an 8% increase from July, and 40% above August 2021. Availability also decreased slightly, down to its lowest levels since April 2021.
Demand has reportedly fallen most in markets where finance, insurance and real estate sectors are large employers, where VTS believes concerns over rising interest rates and economic uncertainty may be affecting industry margins.
Still, demand for Class-A office space in NYC remained strong, VTS found. Even as overall demand for office tours fell in the city in July and August, demand for tours of trophy office properties and Class-A spaces rose.
“Rather than quantity, there could be a flight to quality happening in the city again, meaning demand for higher-end office space is more robust,” VTS Chief Strategy Officer Ryan Masiello said in a statement. “The share of Trophy and Class-A tours has climbed from 71.2% in June to 76.9% in August, reflecting a resilience of quality leasing in the market.”
Rents are also rising in Class-A properties — and while landlords are offering concessions, demand is staying strong for high-quality offices in NYC, JLL Vice President Lauren Calandriello told Bisnow last month.
