Contact Us

Manhattan Office Rents See Sharpest Fall Since 2009 As Leasing Picks Up

Some heavy hitters that leased big office spaces propped New York City's office market up a bit in the third quarter, which ended Wednesday, but asking rates and sublease listings show it is still taking a beating from the disruption and uncertainty brought on by the coronavirus pandemic.

New York skyline

Overall leasing volume in Manhattan rose by around 50% over Q2, and asking rents suffered their worst quarterly drop in more than 10 years, according Colliers International's Q3 office report released Thursday. Sublease space now makes up its highest share of office inventory since the Great Financial Crisis, according to Colliers and Savills' Q3 reports, illustrating the toll the pandemic is taking on the office market.

Office asking rents in Manhattan fell 2.8% between Q2 and Q3, according to Colliers data, and are down 3.3% year-over-year. For Class-A offices, Savills said asking rents dropped by nearly 5% between Q3 2019 and this past quarter, dropping from $98.33 per SF to $93.43.

“In many ways the third quarter was really the first real quarter where we can see the market’s true reaction to COVID,” said Frank Wallach, senior managing director of research at Colliers. “By the third quarter, New York On Pause had ended, so people were able to resume in-office functions, then we were really able to gauge what was going on.”  

Even with the increase in leasing activity in Q3, which Colliers puts at 4.81M SF, the projected overall leasing volume for the year — based on activity thus far —  is roughly half what it was in 2019.

The year-over-year drop-off far surpasses the last two recessions, Wallach said. From 2000 to 2001, the drop-off was 14%, and from 2008 to 2009, the drop-off was 10%, he said. 

“If leasing activity continues at the same pace for the rest of the year, we’re going to end 2020 with still the lowest year of leasing so far in this century,” he said. 

The leasing activity that did occur was concentrated into a few big deals, according to Savills New York and Tri-State Research Director Danny Mangru.

Savills data showed that the 10 biggest leases made up over half of the overall leasing square footage in Q3, including the 730K SF lease Facebook inked with Vornado in the Farley Building at 390 Ninth Ave.  

"When you take that deal out, you’re really where you were last quarter, and last quarter was where we were during this ‘pandemic pause,'” Mangru said.

Six of the top 10 Q3 leases were renewals, including NBCUniversal’s nearly 340K SF lease at the Rockefeller Group’s 1221 Sixth Ave. and Goodwin Procter LLP’s 216K SF lease at Brookfield’s 620 Eighth Ave., according to Savills. 

Incoming demand has declined at a faster pace. Availability has jumped to 12.3%, according to Colliers. Sublet space's share in overall availability in the market skyrocketed to 23.2% from last quarter, the highest it has been since 2009 as companies try to shed their spaces.

Asking rents followed the faltering market and fell at their sharpest rate since 2009, 2.8%, to $77.12 per SF, according to Colliers. 

“This is a period in the market where we’re seeing echoes of what we saw in the Great Recession, which did create opportunities for value-seeking tenants,” Wallach said.

While Savills' data didn't show a stark drop-off in asking rents this quarter, there was an uptick in landlord concessions. 

“If this was a regular economic function of the economy, we can look back to previous downturns and really have a good gauge of what comes next,” Mangru said. “But being that this is more of a health crisis that’s bleeding into an economic crisis, it’s really hard to say when we can expect a recovery.” 

Lauren Calandriello, who represents both tenants and landlords in lease transactions for JRT Realty Group, said she has seen an uptick in interest since Labor Day, particularly in the outer boroughs, but that the lease negotiations starting now won’t turn into signed deals for several months. 

Tenants who are looking are increasingly interested in the overall health and wellness of the building, parking options and enough space to adequately socially distance, she said. They are able to get more tenant improvements, as well as more free rent when they sign leases now. She thinks many with leases expiring will seize on the opportunity to get a better deal. 

“It’s a tenant’s market,” Calandriello said.

CORRECTION, OCT. 1, 5:20 P.M. ETSixty percent of the top 10 Manhattan leases in Q3 were renewals. A previous version of this story incorrectly stated that 60% of all Manhattan leases in the quarter were renewals. This story has been updated.

Related Topics: Colliers, Savills, 2020 Q3, Danny Mangru