NYC Office Deliveries Are Making a Hard Situation Worse
Despite the diminished demand for office space, 8.8 million square feet will deliver into the market this year, the second highest delivery since 2007.
New York City’s office market has yet to find its footing—and a slew of new supply poised to deliver this year is likely to make matters worse. The pandemic upended office demand, yet 8.8 million square feet will come into the market this year, the second highest delivery of new office space since 2007, according to research from Marcus & Millichap. So far, the majority of this space is unleased.
Two projects in the Hudson Yards district account for 5.8 million square feet of the new office space set to deliver into the market this year. Both properties are class-A in quality and highly amenitized. Another 1 million square feet of new office space is coming to the Chelsea neighborhood.
The new office supply will likely put downward pressure on rents, which have already fallen during the pandemic. New York’s most expensive submarkets Manhattan and Brooklyn have seen the sharpest decline in office rents, which remain below average rents before the pandemic. However, rents in less expensive markets including the Bronx, much of Queens and Outer Brooklyn have already met or surpassed pre-pandemic standards.
As new office supply comes online, office users are shedding space. More than one-third of office users expect to reduce leased square footage in the next five years, putting more pressure on the market amid new supply deliveries. This dynamic has kept most investment capital on the sidelines. Overall, trading volume fell year-over-year from 2020 to 2021 in the $1 million to $10 million segment.
Office properties delivering this year were lunched prior to the pandemic. Today, the construction pipeline is shrinking rapidly. A report from Commercial Edge forecasts a contraction in new construction activity. Since the beginning of 2021, developers have started new projects totaling a mere 2.1 million square feet, signaling according to the report. New York had 3.2 million square feet of office starts in 2019 and 5.7 million square feet of office starts in 2020. With new starts decreasing, new supply deliveries will likely begin to plummet in 2024 and continue to fall through 2027.