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Manhattan Office Leasing Beats Pre-Pandemic Average Behind Big Deals

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

A stronger-than-expected summer in the office market gave Manhattan real estate owners a boost in the third quarter.

A total of 9.1M SF of office space was leased in Manhattan between July and September, according to new Savills research. The total is 12.7% higher than the average third quarter between 2015 and 2019. 

Office leasing volume has hit 25.3M SF year-to-date, well on the way to surpass the 26M SF leased in the full year 2021, according to Savills.

Availability, which had been at record highs, dropped during the third quarter and sits at 18%, while available sublease space also dipped to 20.2M SF from 20.8M in the third quarter of last year. Some 16 deals were signed for more than 100K SF, up from 11 in the second quarter.

Of the 12 relocation deals larger than 50K SF that were signed during the quarter, 10 were expansions.

Freshfields Bruckhaus Deringer locked down 180K SF at 3 World Trade Center, an expansion from the 110K SF it occupies at 601 Lexington Ave. Churchill Asset Management grew its space from 18K SF at 430 Park Ave. to 52K SF at 275 Park Ave. 

Still, a big quarter hasn't quelled the long-term questions about the office market. One study by professors at NYU and Columbia this summer pegged the possible value loss among NYC office buildings alone at $49B by 2029.

There is also the looming specter of a painful recession amid runaway inflation and rising interest rates. Interest in New York City office space cratered in August, according to VTS, which found demand was 44% below pre-pandemic averages.

"Is Q3 an outlier? I would hope not, but as we know, growing economic uncertainty may weigh on job growth going forward and will impact landlord pricing when it comes to real estate," Savills Senior Director of Northeast regional research Marisha Clinton wrote in an email.

KPMG’s 450K SF relocation to Two Manhattan West, announced in August, is the biggest deal of the year so far. That lease is a consolidation, however, and means the firm is reducing its space by about 40% from three older buildings in Midtown. The second biggest deal of the quarter was investment management firm Franklin Templeton’s 347K SF lease at SL Green’s One Madison skyscraper.

Hedge fund D.E. Shaw & Co. also signed a big lease at Brookfield's Two Manhattan West — its 283K SF deal was the third-largest of the quarter. Downtown quarterly leasing volume saw 1.5M SF, marking the best three-month streak since the start of the pandemic.

Overall average rents for the borough were at $75.90 per SF, a very slight increase on the quarter before. Midtown Class-A asking rents decreased to $93 per SF, largely because tenants continue to take the most expensive space, removing it from the available market.

The leasing surge is being partially driven by more tenants finally making decisions about their office and workplace arrangements, removing uncertainty in the market, Bisnow previously reported. Office buildings in New York were filled with more people in September than any month since the pandemic, but occupancy peaked at 46.6% of the pre-pandemic average the week of Sept. 14 before dipping to 46.1% the following week, per Kastle Systems data.

"Leasing volume has not 'made up' for lost volume during the pandemic," Clinton wrote. "This may take some time, if at all — The key is to watch how tenants actually utilize office space, which will make a difference."