Sublet Space Jumps in Manhattan

Even before COVID-19, sublease space was growing.

Sublease space rose 4.2 MSF between Q4 2018 and Q1 2020, according to the Manhattan Sublease Market Overview from Savills. In Q1 2020, 26.2% of available space in Manhattan was sublet space. By comparison, sublet space hit a high 44.2% of total available space during the Dot Com and 9/11 crisis.

Once COVID-19 hit, the sublet space increased dramatically, jumping 61.7%, while available direct space has surged by 50%.

“Despite the swell of newly available sublease space, a larger wave of recently added direct available space has led to the significant rise in overall availability,” Savills stated in the report.

There was 22 MSF of sublet space available in Q1 2021. That is the highest mark recorded in the 21st century and accounts for 27.6% of the total available space. In 2009, there was 30.3% of available space. In addition, average sublet asking rents decreased 4.9% year-over-year in Manhattan.

56 leases of greater than 50,000 square feet signed since Q2 2020. Eight were sublease transactions, while 31 were renewals, according to Savills.

While TAMI industry tenants accounted for 39.2% of newly added and expected sublet blocks, financial services and insurance and retailers and luxury brands were next with 25.4% and 10.8%, respectively. Overall, subleases account for 11.4% of leasing activity compared to 27.6% of available space. As this is happening, the asking rent spread between direct ($82) and sublet ($60.9) space widened to 25.8%.

The picture changes some in the various sections of Manhattan. In Midtown, available sublet space has reached a decades-long high of 11.7 MSF after increasing by 6.0 MSF since Q4 2018. In Midtown South, sublet space has risen by 3.3 MSF since Q4 2018 to reach 4.8 MSF, which is the highest mark of the 21st century. In downtown, available sublet space is approaching record-high levels after expanding by 3.3 MSF since Q1 2019

Overall, office rents continue to struggle in Manhattan. In Q4, net absorption clocked in at negative 10.6 million square feet, the highest negative total recorded since early 2009 at the peak of the Great Recession.

A report from Colliers shows that overall, the Manhattan office sector showed rising vacancy (an uptick by 40 basis points to 8%), a 3.5% fall in asking rents to $75.4 per square foot, and the aforementioned negative absorption, which Colliers deems “significant.”

Total leasing activity over the quarter totaled 4.2 million square feet, a decrease of 13.4% from the prior quarter and two-thirds lower than the Q4 2019 level. Overall, Manhattan leasing volume rang in at 18.9 million square feet, the lowest level so far this century.