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Manhattan Office Leasing Up 5%, But Recovery Still Has ‘A Ways To Go’

The pandemic-battered Manhattan office leasing market continues to show signs of improvement, as industry players pin their hopes on a strong worker return after Labor Day once again.


Just under 6M SF was leased during the second quarter of the year, according to CBRE data — a 5% jump from the quarter before. But even with that increase, the market hasn't healed from the pandemic damage. Leasing in the borough was still 4% down from the five-year quarterly average, per the brokerage.

While the availability rate fell 30 basis points between the first and second quarters to 19.2%, it is still up 60 basis points from a year ago. Plus, questions over how the hybrid office model will permeate the market long-term and how much more office workers will return to their desks — as well as angst about worsening economic conditions — are weighing on real estate players' minds.

Brokers told Bisnow, however, that there is plenty to be cheerful about in the data.

“By no means do I think the world’s back to perfect in New York. … We still have a ways to go until we get back to what we would call a pre-pandemic level. But every month we're seeing better signs of leasing,” CBRE Vice Chairman Paul Amrich said.

“We follow what I would call a pipeline, which is: Are people actively touring? Off the heels of those tours are they trading paper and proposals and [letters of intent]? Is that actually leading to leases that are getting executed?" Amrich added. "We're looking at that across the board and feel pretty good about how that pipeline looks right now."

A rendering of The Spiral, Tishman Speyer's office tower at 66 Hudson Blvd. on Manhattan's West Side.

So far this year, leasing activity has reached 11.62M SF, which is 83% ahead of the numbers last year. But while net absorption was positive 976K SF during the quarter, the year-to-date total is still negative 2.27M SF. Rents have climbed 3% from this time last year to hit $77.67, but remained flat on the quarter before, CBRE’s data shows.

“We've seen larger leases getting done, and leases that have much longer-term commitments associated with them,” Amrich said. “In our mind [that] tells us that the larger occupants in Manhattan feel confident about needing office space and feel confident about transacting now because they're willing to commit to the long term.”

The improving daily office occupancy, he added, is giving people the confidence to sign leases at a greater clip. Before the pandemic, he said office occupancy would sit at around 80%. In the week leading up to June 29, office occupancy in New York City was at 41.2% according to Kastle Systems weekly data — a marked improvement over the course of the pandemic, but still far below the pre-crisis level.

But those who have been closely tracking how much the offices are filling up believe there is cause for optimism.

“Offices always have low occupancy in the summer months, but we anticipate a stronger return in the fall, with occupancy at around 50% on the average weekday,” Kathryn Wylde, the president and CEO of the Partnership for New York City, said in an email. “Mayor Adams has been doing much more than his predecessor to make business feel welcome in the city, which is encouraging more companies to open and expand here.”

A survey of some of the city’s major landlords shows none are reporting office buildings that are back to full capacity.

The Durst Organization’s portfolio has an average office occupancy rate of 65% on Tuesday, Wednesday and Thursday, per the company.  A spokesperson for Silverstein Properties said in some industries — such as real estate, law and finance — there have always been some, but not all, workers in the offices. For tenants in industries like technology, more than 50% are back at least three days a week.

At RXR Realty, the portfolio is about 44% occupied, a representative for the company said. At Brookfield Place in the Financial District, occupancy in June was 38% Monday to Friday and 50% Tuesday to Thursday. A normal occupancy would be around 80%, according to a spokesperson.

A rendering of Two Manhattan West, a 1.9M SF office tower Brookfield is developing on Manhattan's Far West Side.

“I like to say the jury's still out on whether or not more companies will significantly alter their office footprint,” said Marisha Clinton, senior director of research in the Northeast region at Savills. “I expect to get more clarity hopefully after the Labor Day holiday.”

Savills predicts inflation, interest rates and geopolitical factors will put pressure on office landlords to lower rents and beef up concession packages. That brokerage also noted an uptick in leasing in its quarterly figures, and it put the improvement down to a number of big-name tenants that leased expensive office space after a years-long search.

Notably, 23% of the major leases in the quarter resulted in an occupancy reduction, per the brokerage.

“While that is occurring — some people taking less space — on the flip side there are a couple of firms that added to their footprint, in some cases more than doubling,” Clinton said.

Major lease deals in the quarter included Blackstone’s renewal and expansion for 326K SF at 601 Lexington Ave. Tiffany & Co. renewed for 287K SF at 200 Fifth Ave. in May. 

HSBC took 263K SF at the Spiral at Hudson Yards, and Macquarie Group locked down 221K SF at 660 Fifth Ave. Those deals both represented a reduction in space, with HSBC downsizing from 367K SF, per Savills, and Macquarie reduced space by 15%.

Brookfield signed law firm Clifford Chance to a 144K SF lease at Two Manhattan West; and will relocate its office from Paramount Group's 31 West 52nd St., where it signed a 380K SF sublease with Deutsche Bank in 2003 that runs until May 2024.

“It's the supply that is still posing a challenge in the corridors of the market — but you're beginning to [see] light at the end of the tunnel in certain areas,” Colliers Executive Managing Director Franklin Wallach told Bisnow.

Wallach has said for some time that the amount of new office development, as well as big blocks of space hitting the market, is one of the biggest long-term challenges for the city’s office market. 

But, he said, that is beginning to taper off.

“39M SF of additional space came on the market since the pandemic began in March 2020 … But over the last 12 months, it was a disproportionately lower amount of about a million-and-a-half SF of negative absorption,” he said. “That means the rate of supply has been increasing at a much slower rate over the last year compared to the initial phase of the pandemic.”

Midtown is performing well, Wallach said, with the sublet inventory in that area down by 15%.

“Midtown itself ended the second quarter with just over just over a million SF of positive absorption — That was the highest single quarter of positive absorption in Midtown in almost four years,” he said.

It is a different story Downtown, where availability has continued to rise. In the Financial District, Wallach said, the availability rate is at 25.2%, the highest in Manhattan.

“The challenge to Downtown is absolutely there," he said. "But Downtown has been able to dig itself out of that hole before and it is in an even stronger position to recover now, compared to 10 or 20 years ago."