Marcus & Millichap recently reported that Manhattan office use was up, although not enormously. But actual occupancy rates are different from demand and leasing of new space.
According to the most recent quarterly report from Colliers, new demand isn’t doing well. Manhattan office leasing volume dropped by 3.9%. “Additionally, at 7.32 million square feet, Q2 2022 demand was 10.1% below Manhattan’s five-year rolling average (8.14 million square feet) and 10.6% below the ten-year average (8.19 million square feet).”
The good news is that 2022 second quarter volume was 60.8% higher than the 4.55 million square feet in the same period of 2021. The comparison of the first six months is also favorable in a year-over-year measure, with 14.95 million square feet a 62.4% increase over 9.11 million square feet. “If leasing volume were to continue at the same pace for the remainder of the year, 2022’s full-year leasing volume would surpass 2021’s full-year total (24.96 million square feet) by 19.8%,” the report read.
Financial services, insurance, and real estate were the biggest contributor to current volume at 47% of the second quarter total. In that sector, about 3% of the leases were for flex space. Technology, advertising, media, and information services came in second at 15%.
What seems to be happening is a tradeoff: higher utilization, and so less overall need for new space as reabsorption occurs. There’s also another factor with an effect: higher costs.
“Manhattan’s asking rent average increased – for the third consecutive quarter – by 0.7% to $75.61/SF,” said the report. “This was Manhattan’s longest consecutive streak of quarterly asking rent increases since 2019. The asking rent average also increased in Midtown South while declining in Midtown and Downtown, quarter-over-quarter.”
Now, the longest consecutive streak since 2019 isn’t necessarily such a big statement. The pandemic ran rough over the business and New York was one of the hardest hit areas. Businesses shut down, big companies had as many people work from home as was possible. Even in 2021, things were moving closer toward normal but hardly typical. A year-over-year comparison will mislead to at least some extent.
Colliers highlighted that, as well: “The Q2 2022 availability rate was 17.2%, lower by 0.1 pp since the prior quarter but higher by 0.2 pp, year-over-year. Although Manhattan’s availability rate tightened from the record-high of 17.4% in February 2022, the available supply has, nonetheless, increased by 72.2% since March 2020 to a total of 92.75 million square feet.”
Also, sublet space has increased by 71.9% since March 2020 and sublet availability grew by 1.06 million square feet, bringing it to a total of 20.47 million square feet. Not quite the pandemic high of 21.16 million square feet in July 2021, but plenty large.
It’s still unclear exactly what is happening, and the strategic choices companies will make. Although there’s been increasing tenant demand, “Manhattan’s availability rate still poses a
barrier to a true recovery with direct and sublet inventory continuing to increase in some corridors, creating value-play opportunities for tenants,” the report quoted Franklin Wallach, executive managing director of research & business development in New York at Colliers.