Manhattan Office Vacancy Hits Record High

Manhattan’s office vacancy rate reached a record high in the first quarter of 2023 as leasing activity dropped to its lowest level since the second quarter of 2021, according to a new report from JLL.

The vacancy rate toped 16% while office leasing activity totaled 4.6M SF, continuing a slowdown that began at the end of last year.

Exacerbating what JLL called “anemic” results in Q1 were the delivery of more than 1.5M SF of new office space, including the completion of the redevelopment of 660 Fifth Avenue.

The glut of new supply as well as more properties being listed for sublease contributed to negative absorption of minus 1.4M SF in Manhattan in Q1, which pushed the vacancy rate up by 40 basis points.

Average overall rents remained plateaued at about $77 per SF, as Class A direct rents, especially in new construction, increased and balanced out falling rents in Class B and sublease space.

Trophy direct asking rents fell to $103.49 per SF in Q1 from $105.74 in Q4 2022 and Class B direct asking rents held steady at slightly over $62 per SF. Class A direct asking rents rose to $88.54 from $85.09 in Q4 2022.

“Landlords are under even more pressure to stay competitive, either by investing in new tenant amenities or by offering generous concessions,” JLL’s report said.

“But, with higher borrowing costs and tighter access to funding, capital-constrained landlords may find it hard to add amenities or offer competitive incentives such as free rent and T.I. allowances, potentially hampering their ability to make deals with prospective tenants,” the report said.

As a result, JLL said, more creative and flexible lease terms may become increasingly common as landlords seek alternative ways of negotiating beyond traditional concessions.

“You’re having this anemic leasing activity, more space is being added in the form of newly constructed or newly renovated space, but also sublease space continues to pile up,” Andrew Lim, director of research at JLL, told Bloomberg.

The increase in available space is putting the squeeze on landlords in older office buildings in NYC who have been pressured for the past year by persistent remote and work and the flight to quality by office tenants seeking spaces with more amenities.

In an interview with Bloomberg on Thursday, NYC Mayor Eric Adams said the city needs to “reinvent” its vacant office space, converting unused office building to housing.