Manhattan Office Leasing Volume At Lowest Level in 20 years

Manhattan’s office leasing volume in 2020 was the lowest in two decades, with full-year activity down 55.9 percent over the prior year and 13.4 percent quarter-over-quarter, according to research released by Colliers International. 

The brokerage firm’s most recently quarterly report reveals record high availability with negative absorption and a decrease in average asking rents. Approximately 4.16 million square feet was leased in the fourth quarter of 2020, two-thirds lower than the volume recorded in the same period in 2019. Leasing activity in the fourth quarter was also 52.2 percent below Manhattan’s five-year rolling average (8.71 million sf) and 49.3 percent below the ten-year average (8.20 million sf). The full-year leasing volume reflects the lowest post-2000 activity on record, according to the report.

Average asking rents decreased by 3.5 percent during the fourth quarter at $74.39 per square foot, the sharpest quarterly decrease since 2009, and were lower in 16 of 18 of Manhattan’s submarkets quarter-over-quarter. Asking rent averages also dropped across all categories of available product, with Class A  ($81.40/ SF) reduced by 2.9% since September, Class B product ($62.93/ SF) down 3.7% quarter-over-quarter, and Class C inventory ($52.66/ SF dropping by 4.2%. 

The technology, advertising, media and information services (TAMI) and financial services, insurance and real estate (FIRE) sectors led Manhattan office leasing last quarter, with respective 25 percent and 22 percent shares. Flex and coworking companies accounted for approximately three percent of total leasing volume for 2020, the lowest yearly volume for the coworking industry since 2012 and a decrease from nine percent in 2019 and 12 percent in 2018.

Availability increased by two percentage points to 14.3 percent, the highest quarterly availability on record, and rose by 4.3 percentage points year-over-year. The jump signals the sharpest quarterly supply increase since 2009. Manhattan’s net absorption during the fourth quarter was negative 10.62 million square feet, the largest quarterly period of negative absorption since the first quarter of 2009; annual net absorption was negative 23.02 million square feet, a seven-fold increase from 2019.

“With the lowest level of leasing volume so far this century along with the highest availability on record, the COVID-19 pandemic has left a measurable impact on the Manhattan office market,” said Franklin Wallach, Senior Managing Director, Colliers International New York Research. “However, there were opportunities for value-seeking tenants in 2020 as rents began to adjust in pockets of the market. With the start of the COVID-19 vaccine distribution and the end of the pandemic in sight, there is the prospect of increased activity in 2021.” 

Submarket-specific highlights from the report include: 

• Midtown’s quarterly leasing volume fell by nearly one-half since the Q3 to 1.49 million square feet, the submarket’s lowest quarterly leasing activity ever. Midtown’s full-year leasing activity (9.23 million square feet) was 41.8 percent less than 2019, marking the worst year of activity in Midtown this century. The submarket also recorded its highest quarterly negative absorption since 2009. 
• Midtown South’s quarterly leasing volume increased by 45.6 percent since 3Q 2020 to 1.91 million square feet, but year-over-year leasing activity decreased by 60.4 percent. The submarket also saw its lowest yearly leasing volume since 2012 and the largest percentage increase for net availability within Manhattan’s three major submarkets. 
• While Lower Manhattan’s quarterly leasing increased since Q3 2020, Downtown’s volume was still significantly less than the 3.89 million square feet recorded in the fourth quarter of 2019. Notable transactions included renewals by Justworks at 55 Water Street (270,000 SF), Topps Company at 1 Whitehall Street (71,000 SF), and the City of New York (157,000 SF) at 250 Broadway. 
• The leading sale in the fourth quarter was SL Green’s and Kaufman Organization’s partial interest sale of 410 Tenth Avenue to 601W Companies for $952.8 million ($1,742/ SF). 
• The Times Square submarket showed the highest full-year leasing volume in 2020 with 2.96 million square feet. Murray Hill (0.90 million square feet), City Hall (0.31 million square feet) and U.N. Plaza (0.20 million square feet) were the only Manhattan submarkets with higher yearly volume. 
• Hudson Yards/ Manhattan West (8.1%) was the only Manhattan submarket with a tighter availability rate during 4Q 2020. 
• Availability in the Hudson Square submarket increased from 4.5 percent to 12.8 percent in 2020, the largest percentage point increase among Manhattan’s submarkets.
• The Greenwich Village submarket ($89.95/ SF) showed the largest average asking rent decrease year-over-year, an 18.3 percent decrease since the end of 2019.