NYC Office Leasing Up 20% in 2Q21

New York City office leasing activity showed signs of life in the second quarter. Leasing totaled 3.47 million square feet in the second quarter, a 20% quarter-over-quarter gain. However, leasing activity still fell a significant 44% below the five-year average of 6.14 square feet, according to research from CBRE.

The increase in leasing demand has a direct correlation to the vaccine distribution. According to CBRE, 60% of people in the city have at least one does of the vaccine, which has helped to drive a return to the office and demand for space. Nicole LaRusso, senior director of research and analysis for CBRE Tri-State, says that occupancy has reached its highest point since the start of the pandemic.

So far this year, Manhattan office leasing totals 6.35 million square feet, 23% less than the same period of 2020. The office vacancy rate increased 140 basis points to 18.6% quarter-over-quarter and 650 basis points year-over-year. Although leasing activity climbed, net absorption was negative for both the year and the quarter. Net absorption was negative 6.02 million square feet in the second quarter, bringing the year-to-date total to negative 15.12 million square feet. As a result, asking rents were flat at $75.67 per square foot for the quarter and down 7% for the year.

Midtown South led the Manhattan market in quarter-over-quarter improvement. Second quarter leasing totaled 788,000 square feet, a 52% increase over the first quarter; however the leasing volume still fell 33% below the five-year historical average of 1.17 million square feet in the market. The vacancy rate increased 240 basis points quarter-over-quarter and 880 basis points for the year to 19.4%. Like the greater market, net absorption was negative 1.95 million square feet in Q2, bringing the year-to-date total to negative 3.33 million square feet.

The Downtown market improved an impressive 32% with leasing activity totaling 591,000 square feet. Still the activity fell 55% behind the five-year average. The vacancy rate in the area is at 20.1%, up 150 basis points from the previous quarter and 720 basis points from the prior year, and once again, quarterly absorption was negative 1.30 million square feet during the second quarter. Notably, the Downtown market had 162,000 square feet of renewals in Q2, up 108% from the 78,000 square feet the previous quarter.

Midtown had the strongest leasing activity with 2.09 million square feet of space, however, activity was up only 9% for the quarter and 45% below the five-year historical average. This submarket also had strong renewal activity with 430,000 square feet in leasing transactions in the second quarter, bringing the year-to-date total to 1.62 million square feet. The vacancy rate also increased, up 90 basis points to 17.8%; however, this is the lowest vacancy rate among the Manhattan submarkets.

The market has been slowly improving. In the first quarter, office leasing increased 18.6% to reach 1.90 million square feet in January, hitting its highest mark since July 2020, according to earlier research from Colliers.