Manhattan Office Leasing Drops 23%

The euphoria of a fourth-quarter surge in office leasing in Manhattan at the end of 2023—which was fueled by a bevy of mega-leases—has given way to the hangover of a 23% drop in leasing activity in the first quarter of 2024.

Office leasing volume in Manhattan retreated to 6.8M SF in Q1, down from the hefty 8.9M SF reported in the previous quarter. The first quarter tally also is 6.6% lower in a year-over-year comparison with Q1 2023, according to a new market report from Savills.

The cooling leasing climate, which Savills called “tepid,” coupled with “abundant large block additions,” drove the overall office availability rate in Manhattan to a new post-pandemic peak of 20.1%, rising by 2.9M SF in the first quarter to a new total of 94.1M SF.

“There were 19 blocks of at least 100K SF added to the market in Q1,” the report said.

While large blocks of space were being added to the market, large leasing deals diminished in the first quarter from the frenzy of activity at the end of the year. Only seven transactions in Q1 were for leases larger than 100K SF, compared to 14 100K SF+ leases in the fourth quarter.

Sublet space availability increased 5.7% in the first quarter, growing to 21.3M SF and reversing the trend of the second half of 2023, which featured two consecutive quarters of declining sublet availability.

The legal sector, which was a frontrunner in office leasing activity in Manhattan in 2023—law firm leasing made up more than 17% of all office leasing in the borough, according to a JLL estimate—also has cooled down a bit.

Legal services activity accounted for 10.7% of the leasing volume in the first quarter, Savills said. Some of this slack was taken up by retailers, who accounted for three of the four largest transactions in Q1 and 18% of the total leasing volume in Manhattan after a 2023 market share of 7.6%.

Midtown Class A asking rents dropped 1.6% in the first quarter to $90.92 per SF, with much of the leasing activity concentrated at the top of the market, the report said.

“The spread between direct and sublet asking rents in Manhattan widened to 27.8% in Q1, as sublet asking rents fell for a fifth straight quarter to $58.71 per SF, reflecting aging listings with increasingly aggressive pricing,” Savills said.

The report’s outlook said “the majority of leasing activity will continue to be expiration-driven as office-using employment remains stagnant, giving little impetus for tenants to preemptively seek out space.”