Manhattan sublease supply is down 1.2 million square feet in the third quarter from 22 million in the first quarter, Savills Research is reporting. 

Subleasing activity accounted for 23.4% of leasing activity during the third quarter, up from 15.7% a year ago which is contributing to the decrease in sublease supply.

The asking rent spread between direct ($79.85) and sublease ($58.94) space had widened to 26.2%. Average sublet asking rents have decreased 9.9% year-over-year while average direct asking rents have fallen 5.4% over the past year

Savills said the availability of space in Manhattan holds steady but remains elevated for both direct and sublet supply. “As sublet available space starts to decline, a larger wave of recently added direct available space has led to the significant rise in overall availability.”

In midtown, sublet available space is back to a 21st Century high after declining last quarter, according to Savills.

The firm said sublet supply increased by 0.5 msf during the third quarter to reach 11.7 msf, back to the first quarter’s decades-long peak of 11.7 msf.

In midtown south, sublet available space continues to decline after reaching a decades-long high, but remains elevated as sublet supply declined by 0.5 msf during the third quarter to reach 4.1 msf, down from the first quarter’s 2021’s 21st century peak of 4.8 msf.

In downtown, Savills said sublet available space declines but remains near historic high.

In that market, sublet supply declined by 0.5 msf during the third quarter to reach 4.9 msf, down from the first quarter’s recent high of 5.6 msf. 

The situation may be poised for improvement if KPG Funds’ prediction of an imminent surge in NYC leasing activity for the next couple of quarters comes to fruition. 

“These micro submarkets continue to massively outperform other submarkets and are on pace to have more demand than supply,” Greg Kraut, CEO of KPG Funds, said in prepared remarks.

According to KPG’s Q3 RSSI Index results, during the third quarter, every Manhattan submarket had more tenant demand than in the first quarter. Most of the new tenant demand was in Midtown South to the tune of 6.5 million square feet, up a staggering 64 percent from Q1 this year, according to the analysis.