The bright lights of New York continue to attract office tenants, as the third quarter saw 10.6 million square feet of leasing activity, a 20.4 percent increase versus the previous three months and up by 1.1 million square feet year-over-year, according to a report from Savills. The 31.7 million square feet posted year-to-date is not only on track to return to pre-pandemic levels but is on pace to be the highest year of signings since 2014.
"Manhattan’s office recovery continues to be driven by its core industries—financial services and insurance, technology, advertising, media and information, and legal services— which together accounted for 61.1% of Q3 leasing activity," Savills explained.
Deloitte commanded the top lease of the third quarter, with its 807,000 square foot relocation in Hudson Yards. Guggenheim Partners and Salesforce were the next two largest, with their renewal and expansion deals taking 356,658 square feet and 313,691 square feet, respectively.
Also, availability is shooting down for office in Manhattan, with the rate dropping 350 basis points year-over-year to 16.2 percent. Midtown is standing out with availability in the submarket falling to 13.8 percent.
Meanwhile, rent performance was a little more mixed. Overall, asking prices dropped by 0.6 percent to $75.44 per square foot. However, Class A assets saw a one percent increase to $86.35 per square foot — highlighting the fight for quality trend in the market.
But interestingly, as Savills looks ahead, some Class B assets are bound to see higher demand, with Class A options becoming more scarce. This is the case for "high-quality well-located," Class B properties.
Also, Savills said that it sees office sales activity in Manhattan picking up if the Federal Reserve continues to cut interest rates. Another thing to keep an eye on, according to the CRE firm — the labor market. If the weakness continues — that could open the door for more return to the office mandates, as employers hold the edge now over workers in the market.
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