NEW YORK CITY—Rents are falling across Manhattan as landlords continue to compete with one another for a shrinking tenant base, according to a report from Savills Studley on office leasing in the fourth quarter of 2016.

Leasing activity for the year ended on a slow note, dropping from 7.6 million square feet in the third quarter to 6.8 million square feet in the fourth quarter. Midtown once again captured most of the larger transactions. Deal volume in Midtown South was steady, exceeding one million square feet for the seventh quarter in a row.

Sales are down sharply from a year ago, struggling to keep pace with the 2015 tally. As of November 2016, year-to-date office sales totaled $20.4 billion, a 19.7% decrease from the $24.5 billion in the first 11 months of 2015.

Availability rates are on the rise, jumping by 50 basis points from 10.6% to 11.1% in Manhattan across all submarkets. Midtown's class A availability rate increased by 20 basis points to 12.5%. Downtown's class A rate rose by 80 basis points to 15.2%. Finally, Midtown South's overall availability rate spiked by 90 basis points to 9.6%.

Sublet supply is also increasing, a sign of a softening office market. The report notes that total available sublet space went up from 8.4 million square feet as of July 2016 to 10.4 million square feet in December 2016.

Rents are declining, with overall asking rent falling by 2.6% to $72.96 in Manhattan. The dip is spurred largely by a 4.4% decline in Midtown's class A sector to $84.92, its lowest mark since early 2015.

Savills Studley's Q4 2016 office report predicts that the Manhattan's office market is expected to continue its gradual tilt to tenant's favor in 2017 and anticipates that landlords will become far more aggressive in engaging existing tenants in early renewal conversations. While there is no expectation of a recession in the next several quarters, uncertainty is running at very high levels, the research notes.

“Some market observers are hoping that the new Administration's 'pro-growth' agenda will jumpstart activity,” comments executive managing director Erik Schmall. “Any reforms that see the light of day will not change the supply-demand equation in Manhattan overnight.”

Adds Joe Genovesi, executive managing director added, “Sooner or later, the market turns. The shift to tenant's favor is becoming more apparent heading into 2017.”

Instant Insights /

“The Shift To Tenants' Favor Is Becoming More Apparent”

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