Google, NYU Add To Manhattan’s Sublease Market Despite Availability Decline

The amount of Manhattan office space on the sublease market is falling — but that doesn't necessarily mean tenants are moving back in.

Many leases are simply expiring without finding new occupants. Less than half of sublets nail down replacements, and spaces commonly sit on the market for over a year, according to a fourth-quarter report from Savills. 

Plus, large occupiers including Google, NYU and McGraw-Hill Education continue to rearrange their real estate portfolios, further adding to availability.

“At the end of the day, tenants want the top-quality space,” Savills Vice President of Research East Marisha Clinton said. “If it's prebuilt, prewired, ready to move in, those are the sublease spaces that are moving. Whereas the commodity-type spaces are sitting on the market a whole lot longer.”

Just under 19M SF of sublease space is on the market in Manhattan, accounting for 22% of total available office space, according to Savills. That’s down 7% from a year ago. Listings peaked in the first quarter of 2021 at 22M SF, representing more than one-quarter of all available space at the time. 

Approximately 43% of sublease space that has been removed from the market was due to successful leasing, Savills found. But almost 24% of removals are attributed to lease expirations after tenants failed to find a new occupier, an increase from 20% over the past two years. 

In the fourth quarter, there were less than 1M SF of sublease transactions, a 46% decline from the prior quarter.

Meanwhile, direct leasing surged. Volume totaled almost 11M SF, up from 9.5M SF the quarter before, according to separate reports by Savills. 

Most of that leasing activity has been concentrated in top-tier office space, which is often not the type of space that exists on the sublease market.

That can result in a game of musical chairs.

Tri State Commercial Realty founder and President Shlomi Bagdadi said he has seen several tenants hold on to some of their old office space while signing on for new, higher-quality square footage.

In one case, he had a tech company with approximately 60K SF in one building keep 20K SF of its office while subleasing the remainder of the space. The company, which he declined to name, signed another lease at a separate location to replace the other 40K SF. 

“There’s a wide variety of considerations from different types of occupiers,” Bagdadi said. “The ones that have [less time on the] lease, to be honest with you, they've pretty much written off all the lease cost.”

Since the end of 2021, 4M SF of sublease availabilities of 15K SF or greater have returned to the landlord following lease expirations.

There are 34 blocks of spaces available in Manhattan that are 100K SF or greater, totaling nearly 7M SF. Those spaces spend an average of just under 17 months on the market. Blocks between 25K and 100K spend the most time on the market, averaging nearly two years.

That is despite sublets often being much cheaper than direct leases. Average rents are nearly 40% less than direct leases.

Meanwhile, there have been some hefty additions to the market. In Q4, there were 22 new sublet listings of at least 15K SF in Manhattan. 

That includes Google, which placed about 310K SF of its 345 Hudson St. office on the market, according to the Savills report. Another 400K SF of the 980K SF former printing press site is being advertised for direct lease by CBRE.

In October, reports emerged that Google was drastically reducing its footprint. Through the end of the third quarter, the tech giant had paid $607M in impairment charges to shed office space.

At 1325 Sixth Ave., McGraw-Hill Education has put up 125K SF of its 136K SF office for sublease, the Savills report said. Its lease was among the biggest of 2018.

Nearby, at 1345 Sixth Ave., Global Infrastructure Partners is looking to sublease approximately 85K SF. Blackstone is reportedly looking to acquire a large stake in the 1.9M SF building. 

Other large contributors to the sublease availability were Stonepeak Infrastructure Partners, NYU Langone and FGS Global, with 77K SF, 74K and 65K, respectively, according to Savills. 

Still, there are signs of brighter days ahead.

Seven of the top 10 biggest sublease transactions of the past two years occurred in 2024, the largest being Convington & Burling’s 235K SF lease at 30 Hudson Yards, part of the highly amenitized, recently built development. The deal also included a direct extension, indicating a long-term commitment to the building. 

Office market experts also foresee an awakening from sectors that have been relatively quiet due to the popularity of remote work. 

Tenants in the technology, advertising, media and information sectors have accounted for half of all sublease additions in the past two years. But that could change in the coming months as data tracking early interest in leasing has shown tech tenants starting to shop around. 

"When you isolate the T in TAMI, the true tech companies, they are starting to take on more space, particularly within the artificial intelligence vertical," Clinton said.

In October, OpenAI put down its first New York City roots, inking a lease for 90K in SoHo's Puck Building. That same month, AI platform Harvey doubled its space at 315 Park Avenue South just three months after it signed its original lease at the building. 

The sublease market took 19 quarters to recover after the Dot-Com crisis and 27 quarters after the Global Financial Crisis, according to Clinton’s comparison of sublease availability as a percentage of total market. 

It is now the ninth quarter since the peak of availability as a result of the pandemic, she said. 

“It will take some time,” Clinton said. “But the good thing is we are seeing that clear sustained reduction in sublease availability.”