Manhattan Office Shows Signs of Both Strength and Weakness

Looking at activity in the Manhattan office market during the third quarter, the picture is murky. Overall, activity jumped by a million square feet, rising to 4.6 million square feet from 3.6 million, according to Newmark Knight Frank’s latest quarterly research.

Other indicators also showed declines—or increases where no one wants them. Negative absorption of 10,973,238 square feet was seen after a spike in availability, marking the highest volume of negative quarterly absorption on record, NKF said. Further, year-to-date absorption through the first three quarters of 2020 hit its lowest point since 2001, and the metric has now been negative in seven of the last eight quarters.

Overall, the Manhattan availability rate increased to 14.1%, from 11.9% in the second quarter, as a staggering 18 out of 19 submarkets experienced an increase. The one submarket that performed well was Penn Station, where Facebook leased all of 390 Ninth Ave., aka the Farley Post Office, which was a 730,000-square-foot commitment.

Adding insult to injury, asking rents declined for the second straight quarter, falling by $2.23 per square foot to $78.75. NKF attributed the drop to sublease space pushing average rents down, prompting landlords to reprice existing space.

Each of Manhattan’s three major submarkets’ rents fell, but Midtown South suffered the most, experiencing a $3.11 per square foot decline to $81.58. Availability in the submarket jumped by 2.7% from the last quarter, to 12.8%, thanks to a 114,230-square-foot block addition at 149 Madison AVe., which was previously leased by WeWork, as well as some sublease listings.

In Midtown, leasing velocity actually went up, hitting 3.6 million square feet, a substantial increase of 65.9% from the previous quarter but still the second-lowest quarterly total in seven years. Facebook’s lease, as well as some short-term deals, provided the boost.

Asking rents in Midtown dipped by $2.56 per square foot to $83.20, with the Grand Central and Plaza District submarkets experiencing the largest declines. Availability increased by 2.1%, to 14.6%. Additions included all of 3 Times Square; the 380,000 square feet previously occupied by Neiman Marcus—which has been hit hard by the economic effects of COVID-19, and a 308,131-square-foot space at 855 Third Ave.

In Lower Manhattan, over 90% of leasing was due to relocations. AIG inked the area’s largest deal, moving to a 216,638-square-foot space at 28 Liberty St. from 175 Water St. The availability rate rose by 13.7%, or 180 basis points, while absorption hit a negative 1,909,998 square feet. Asking rents fell but they dipped less than the other submarkets, slipping by 1.10 per square foot.

New York City has lost 697,600 jobs since February, of which 20.2% have been office-using positions. However, NKF elaborated, “Non-office using industries have borne the brunt of the pandemic’s effects. For example, the hospitality industry’s added 75,200 jobs since May, but it’s down 162,000 jobs since the onset of COVID-19.”