Manhattan Office Leasing Activity Showed Some Improvement in Second Quarter

Real Estate In-Depth | August 23, 2021

SL Green Realty Corp. announced recently that the law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. had signed a 101,394 square-foot, 20-year lease at 919 Third Ave. The 47-story tower will become the firm’s New York headquarters.

NEW YORK—Manhattan’s office market showed clear signs of breaking out of the pandemic shutdown during the second quarter of 2021, as leasing activity increased on the strength of several large deals signed. Officials with commercial real estate brokerage firm Transwestern Real Estate Services note that while the market is not back to pre-pandemic levels, availability increased and rent rates declined in a second quarter of mixed results.

During the second quarter, tenants leased 4.4 million square feet of office space, up slightly from 4.3 million square feet in the previous quarter. Approximately a dozen leases were signed exceeding 50,000 square feet in size, including four leases topping 100,000 square feet. Sublease levels, which had grown during the past several quarters, eased considerably.

“The overall uptick in market activity, particularly with the large leases signed during the quarter, is fueling the return of Manhattan’s office market,” said Rory Murphy, partner at Transwestern. “We are seeing an increased confidence on the part of tenants who want to both leverage current market conditions and secure a long-term strategy in the city.”

Among the key highlights from the report included:

• At 4.4 million square feet, the quarterly leasing total is about half of the five-year pre-pandemic average of 9.4 million square feet.

• Approximately 18.2 million square feet were leased during the last four quarters, about 46% below the prior four-quarter tally from third quarter 2019 to second quarter 2020.

• Availability rose to 18.2%, marking the eighth straight quarter of increases.

• Sublet availability remained unchanged at 4.7%, representing 25.8% of all availability in Manhattan, which is down from 27.8% last quarter.

• Manhattan asking rents decreased 1.8% from last quarter to $70.69-per-square-f0ot. The decline is less than what we’ve seen in previous recent quarters.

• Rents were down 12.6% year-over-year and were at their lowest level since 2016.

“The operative term for the quarter, and moving into the third quarter, appears to be ‘cautious optimism,’” said Corrie Slewett, research manager at Transwestern. “Leasing activity is ticking up, availability is still on the increase but leveling off and rent levels continued to decrease but at a slower rate. There’s definitely reason for optimism, though comparisons with historical figures certainly remind one to have caution. The impact of the pandemic and its shutdown are going to have a long tail and, while it’s still too early to say how long it will be, it appears that we are heading in the right direction.”

In its Market Outlook section of the report, Transwestern states that it took about six quarters for total availability to peak following the collapse of Lehman in late 2008, and as the city approaches that benchmark, in terms of COVID “we are already seeing a slowdown in space additions from their recent frenzy. While overall availability did increase this quarter, the ratio of sublet to direct space has tightened, partially reversing the quarterly increases that had prevailed since mid-2020.”

The firm added that concessions are still on the table, “but the tide is turning as tenants realize they need to act quickly to take advantage of these conditions.”

Transwestern concluded its report by stating, “With live sports and concerts already underway, many at full capacity, and Broadway set to re-open in September, New York City is once again seeing tourism increase, benefitting restaurants, hotels, and retail. This pent-up demand will come into play further in the second half of the year as the city opens up more fully, and both tenants and landlords realize Manhattan is still the place to be.”

Editor’s Note: This report was released prior to the city instituting mandated vaccinations for indoor dining, entertainment and fitness businesses starting on Aug. 17. Enforcement of the COVID-19 vaccination program will begin on Sept. 13.