Manhattan Office Leasing in on a Winning Streak

Things are starting to look up in Manhattan’s office market. For the fourth consecutive month, leasing activity has improved in the market, according to a new report from Colliers. In August, leasing activity totaled 2.5 million square feet, an increase of 3.9% over July and the highest since January 2020, when leasing volume totaled 3.7 square feet.

There were two notable lease transactions in August that helped to boost leasing activity: Crédit Agricole’s 167,000-square-foot relocation at 1301 Avenue of the Americas and BDO USA’s 143,000-square-foot lease at 200 Park Avenue. The two deals were the largest deals of the month. Overall, the deal activity helped to drive the market vacancy rate down by .2% to 16.9%. Although the decrease seems nominal, it is the largest monthly decrease in vacancy since June 2019.

While the market is making strides toward a recovery, it has a long way to go to offset the losses during the peak of the pandemic. Since March 2020, when the pandemic began, the vacancy rate has increased by 68.5% or a total of 90.7 square feet. In terms of leasing volume, the gains in the last four months have delivered only a slightly better 2021. Year-to-date leasing activity is only 13.9 million square feet this year compared to 13.7 million square feet in 2020.

The sublease market is another sign of improvement. In August, the sublease supply decreased by .64 millions square feet, the largest monthly decrease in sublease supply since 2015. Plus, an additional 1.4 million square feet of space was absorbed in August, making it the strongest month for positive absorption since December 2018. Still, the sublease inventory in Manhattan grew more than 72% last year to a total of more than 20 million square feet.

These gains represent an exciting and rapid recovery for the city, which was crippled by the pandemic. A report from Colliers at the beginning of the year showed that Manhattan’s office leasing volume in 2020 was the lowest in two decades, with full-year activity down 55.9% over the prior year and 13.4% quarter-over-quarter. As an example, only 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.

In July, it was a similar story. Manhattan office leasing totaled 2.35 million square feet, a 15.2% increase over June figures; however leasing activity was still nearly 35% below pre-pandemic levels, when average monthly volume totaled 3.58 million square feet, and the vacancy rate is at a record high of 17.1%.