Q3 Manhattan Office Leasing Paints Dire Picture

Office leasing in Manhattan during the third quarter shows clear, record-breaking signs of distress.

According to the latest report from Colliers International, volume came in at 4.81 million square feet, less than half of the activity seen for the third quarter of 2019, which posted 9.54 million square feet of leasing. Velocity from July to September also failed to impress, dropping 46% below Manhattan’s five-year rolling average of 8.89 million square feet and 41.8% below the ten-year average of 8.26 million square feet.

Such results paint a dire picture. “If leasing volume continues at the current pace for the remainder of the year, full-year leasing volume in 2020 [which was 19.74 million square feet] would be the lowest so far this century,” the report said.

The soaring increase in remote work brought about by COVID-19 likely led to the lack of activity in the co-working or serviced office space, where no leases were signed. That makes the third quarter of 2020 the first quarter in the last decade without any co-working leasing activity.

Meanwhile, asking rents posted the sharpest percentage decrease since 2009, falling by 2.8%. Also for the first time in 11 years, the average asking rent average was lower in all three of Manhattan’s major markets, and in 17 of the borough’s 18 submarkets.

While the availability rate in the Manhattan office market only increased by 1.7%, it jumped to its highest quarterly level since the second quarter of 2013, and posted the largest quarterly increase in supply since 2009. Also for the first time in more than a decade, the market experienced five consecutive quarters of increasing availability.

Year-over-year, leasing volume fell by 9.4% in Midtown while leasing activity compared to the third quarter of last year dropped by a staggering 71.2%. In Lower Manhattan, volume decreased for the third straight quarter by 8.9% since the second quarter to .60 million square feet. That level marks the lowest quarterly leasing volume for the area since the fourth quarter of 2010.

“Unlike the second quarter—which was defined by the New York on PAUSE order and subsequent shutdown throughout New York State—the third quarter was a more vivid display of COVID-19’s impact on the office market,” said Franklin Wallach, senior managing director, Colliers International, New York Research. “The outlook for the rest of the year will greatly depend on New York City’s continued reopening, its ability to sustain the low number of COVID-19 cases and the financial position of the city, the state and the MTA.”