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NYC Office Leasing Jumps But Availability Still At Record Levels

New York City skyline

Manhattan's had its best quarter since the coronavirus pandemic began over the summer, but the activity spike failed to make a dent in the borough's elevated vacancy.

Manhattan office availability is now sitting at 18.4%, according to a Savills report released Monday, well above the market’s five-year average at 10.8% before the crisis.

Some 7.7M SF was leased between July and September, a 55.8% jump from the previous quarter, according to Savills, which predicts even this renewed demand will not bring the availability down for the “foreseeable” future. The average asking rent per SF was $75.08 during Q3, a more than 10% drop from the first quarter of 2020.

Savills New York and Tri-State Region Research Director Danny Mangru said Q3 saw the highest leasing activity since the onset of the crisis, but supply is still far outstripping demand.

“This quarter is ending an eight-quarter surge in availability," he said. "While it may be starting to taper off, it is something we will have to keep an eye on." 

Manhattan sublease listings, which peaked at 22M SF in the first quarter of this year, have been going down, with some of that square footage getting leased and some tenants taking theirs back. However, that sublease space and vast supply has pushed down rents.

Availability rate varies between neighborhoods; Downtown's rate increased to reach 21%, while Midtown South availability dropped to 18.7%. Midtown’s rate increased to hit 17.5%. Savills notes that supply will continue to increase: With Deutsche Bank leaving 60 Wall St. and 2 Manhattan West reaching completion, another 3M SF will soon be added to the city's supply. 

“I still don't think we’ve hit the peak of supply, not yet,” Mangru said, though he said he believes Q3's activity is cause for optimism. “If you look from 2015 to 2019, the Q3 average is roughly 8M SF [of leasing]. We are at 7.7M SF, so we’re not quite at pre-pandemic levels, but it is a good sign.”

Most of the quarter’s biggest leases were renewals, with the largest deal being Interpublic Group's 513K SF renewal at 100 West 33rd St. Fried Frank also renewed for 400K SF at 1 New York Plaza, and Credit Agricole renewed for 167K SF at 1301 Sixth Ave. Mangru said that while the biggest leases were renewals, new leases and relocations made up the majority of deal volume for the quarter.

While the pandemic threw cold water on the city’s office market, many predict there are seismic shifts afoot in how workers use offices that would have long-term impacts on the market in places like New York City. Expectations that there would be a significant return to the office after Labor Day did not totally materialize.

Landlords have blamed anxiety around the delta variant, and point to the fact that while there has not been a mass return to the office, there has still been a significant uptick in occupancy. Kastle Systems had New York City’s physical office occupancy in the New York metro area at 28.1% on Sept. 15 — the highest that rate has been since the start of the crisis. It dipped to 27.8% a week later.