Landlords Looking to Beat the Market of 2018 and Beyond

As of now, Midtown and Downtown have a combined 24.4 million square feet of Class A space available for lease. By early 2018, that figure may balloon up to nearly 30 million square feet.

NEW YORK CITY—Manhattan’s office market is running both hot and cold, brokerage firm Savills Studley says. While leasing activity is brisk in Midtown, deal volume in Downtown fell to its lowest level in a year. “The market has been running hot and cold of late, matching volatility in the broader economy,” says Matt Barlow, EVP of Savills Studley. “Some buildings have enjoyed stronger demand, but space in others has languished as tenants act cautiously.” He adds, “Landlords are moving to meet or beat the market, particularly those facing large vacancies in 2018 or later. Asking rents have barely budged, but incentives such as pre-built packages, are becoming more prevalent.” The brokerage firm’s second quarter market report notes that some landlords with space availabilities in a few years may have a reason to be nervous. As of now, Midtown and Downtown have a combined 24.4 million square feet of Class A space available for lease. By early 2018, that figure may balloon up to nearly 30 million square feet, the brokerage firm predicts. While some building owners are holding out for the top bidder or the best tenant, most Class A landlords “are scrambling to shore up their tenant roster. In turn, landlords in both Midtown and Downtown are stretching a bit more to get deals done. Concessions remain elevated.” Some owners are pre-building space, while others are introducing furniture packages to lure new tenants. Meanwhile, in Lower Manhattan where publishing and media-related companies are flocking to, as well as on the Far West Side, where demand from multiple industries has set in there, some building owners are investing in repositioning their properties. Some are even recapturing space in order to upgrade and reposition their properties to cater to new tenant demands. “Manhattan landlords have an opportunity to respond to the changing preferences of tenants by offering amenities, such as outdoor space, conference centers, gyms, bike rooms and adding Wi-Fi throughout the building,” the report states. Manhattan deal volume totaled 8 million square feet during the second quarter, but demand remains choppy overall, Savills Studley says. Manhattan’s overall availability rate was flat at 10.4% at the end of the second quarter. Midtown’s Class A availability rate fell by 0.3 percentage points to 10.8%. Downtown saw an increase of 0.8 percentage points to 16.2%. Midtown South was virtually unchanged at 8.9% at the end of the second quarter. Downtown leasing volume fell to 1.1 million square feet, while a flurry of deals in Midtown boosted leasing volume there to 5 million square feet for only the second time in eight quarters. Midtown South continued its string of 1 million square feet in leasing per quarter—the fifth consecutive quarter it has hit this mark and 12th time in the last 13 quarters. The report indicates the overall New York City asking rent fell by 2.5% from $75.34-per-square-foot to $73.44-per-square-foot during the quarter.