NYC Office Users Ink Longer Lease Terms

Longer lease terms in New York City are the latest sign of recovery in the office market. A new report from Avison Young shows that office users are beginning to sign longer lease terms.

During the pandemic, the average lease term in New York City fell to around 100 months, hitting a low in January of 96 months. As of May, lease terms climbed to 103 months, a new high since the start of the pandemic, and a sign of recovering confidence in office usage.

The prior term high was 123 months in 2018. Lease terms had been declining steadily, but remained above 100 months until falling dramatically at the start of the pandemic. From the 2018 high, lease terms fell 18.9% by January 2021. The share of lease renewals as a proportion of total leasing activity doubled during the pandemic, signifying a decrease in new lease transactions.

The increased length of office lease terms in May is a rapid recovery. In only five months, lease term lengths have gained a quarter of what was lost during the pandemic, according to the report.

Avisonn Young says that now landlords have to wait to see if the velocity will keep pace, but if the most recent office survey from the Partnership New York City is an indication, it will. The survey found that 62% of office workers expect to be back in the office by Labor Day. In March, only 45% of workers that had the same expectation. This shows the rapid pace of the recovery, due largely to vaccinations. Most companies plan to implement a hybrid work model, and 25% of companies surveyed said that they would require a total return to the office. Only 4% of companies said that returning to the office was not required, which should give landlords optimism.

Office owners have been hit hard by the pandemic. Last year, Manhattan’s office leasing volume fell to the lowest in two decades, with full-year activity down 55.9% over the prior year and 13.4% quarter-over-quarter, according to research released by Colliers. While it is too early to tell how 2021 will compare, the increase in lease length as well as the positive expectation for a return to office should improve leasing activity this year.