NYC 2020 Office Leasing Volume Plummets, On Track To Hit Its Lowest Point This Century

The Manhattan office market is on track to hit a 20-year low for leasing volume. 

Asking rents declined and availability expanded significantly this August, according to Colliers’ monthly Manhattan office snapshot, as the city continued to grapple with uncertainty around the future of one of its most important asset classes.

“If leasing volume continues at the same rate for the remainder of the year, 2020 would end up the lowest leasing volume so far this century,” the brokerage firm wrote in the report released Sept. 1. 

While some big deals in the final four months of the year could prop it above the lowest point in 20 years, it is unlikely that leasing will be close to last year's leasing numbers. 

“If the math continues along the same trajectory we will have 20.53M SF of leasing activity for 2020 ... anything can certainly change, a couple of mega-deals closing over the next few months, for instance, can completely change that trajectory," Colliers Head of Research Frank Wallach said. "However, it’s highly doubtful that even in that scenario, we end 2020 anywhere near the 43M SF of leasing volume we saw in 2019.” 

Leasing activity dropped by nearly half — from 2.39M SF to 1.3M SF —  from July to August alone. Volume dropped by 20.9% year-over-year in August, according to the report. At the same time, availability is on the rise; in August, it hit its highest rate since 2013 at 11.8%, 0.8% higher than the month prior. 

Monthly absorption was negative for the sixth month in a row and asking rents declined 1.3% from July, hitting $78.01 per SF, the report showed. 

The office market is in flux amid a work-from-home revolution and public health crisis. Not many returned to the office in June when office buildings were allowed to reopen under Gov. Andrew Cuomo’s plan for reopening. Tech giants such as Facebook and Twitter announced in May that some working from home would be permanent.

Office subleasing around the city is expected to rise, experts told Bisnow in July. Condé Nast is reportedly in talks to break its 25-year, 200K SF lease at  Durst’s One World Trade, while Moody’s is seeking a subletter for its 75K SF lease in the same building.

Major office landlords have been pressuring companies to come back, expressing worry about the future of the sector if companies don't return. 

Colliers' report showed that some major office neighborhoods fared better than others in August. While leasing volume plummeted 70% month-over-month in Midtown from 1.54M SF in July to 0.47M SF in August, leasing activity doubled in South Midtown from 0.4M SF in July to 0.81M SF in August.

The uptick in Midtown South is due largely to the 730K SF lease Facebook inked at Vornado's Farley Post Office at 390 Ninth Ave.

The downtown area did not see a single lease over 25K SF signed in August, propelling its activity rate from 0.44 MSF in July to 0.02M SF last month. 

This trend could turn around in the upcoming months. 

“Psychologically, there is going to be a very different world that we’re going to enter after Labor Day: There is a lot of talk about more people coming back to the office after Labor Day, there is traditionally a string of deals that close between Thanksgiving and New Year’s because there is usually a rush to get deals off the books and finished before New Year’s,” Wallach said.  

Office landlords and brokers have repeatedly expressed optimism about the long-term stability of the office market once the current health crisis is over. 

“We’re going to see [lower occupancy rates] for sure in the short term, because we have to and health and safety necessitate that,” Transwestern New York co-founder and partner Lindsay Ornstein said on a Bisnow webinar in May.

“But in the long term … people want to be together. I can’t wait to give my colleagues and friends a hug. People want to sit next to each other in the pantry and have a coffee and a conversation," she said. "So as soon as there is treatment or vaccine for this disease and people have a sense of safety again, I don’t think we’re going to go to these draconian measures."