Manhattan's Office Rents Appear to be Bottoming

Manhattan asking rents for office declined 0.5% from midyear to $70.35 per square foot in Q3 2021, according to Transwestern.  This is the smallest quarterly decline since the beginning of the pandemic. In total, rents are down 10.2% year-over-year and remain about 13.6% below their Q1 2020 peak. 

Other signs show promise for the borough. Manhattan was one of the standouts in CBRE’s US Tenants in the Market Index, ranking third among the 12 largest cities in the country for office market recovery in November with multiple measures of demand showing steady progress. Another indicator of progress: the Manhattan availability rate decreased for the first time since mid-2019, falling 0.2 pp to 18.0% in the third quarter, according to Transwestern. 

Here is how these metrics break down.

Midtown and Midtown South both observed decreases in asking rents in line with Manhattan overall, at a respective 0.6% and 0.5% below last quarter, Transwestern reports. Of these, Midtown experienced the steepest drop year over-year at 11.2%, falling to $75.29 per square foot. Midtown South rents are now 9.7% below their year-ago level at $72.12 per square foot.

Also, Downtown rents held steady from Q2 at $58.58 per square foot, some 8.4% below their year-ago level.

However, Manhattan’s high availability implies rent growth will be slow, at least in the near term, Transwestern says, as the excess of sublease space remains a factor in the reduced asking rates. The good news is that “as fewer sublet spaces are added and others are pulled from the pile, and new, modernized assets are added to the market, rents will have an opportunity to increase.”

In fact, there are already signs that sublet availability is also trending lower. After holding steady in Q2, the rate decreased by 0.1 pp to 4.6% this quarter, Transwestern says. “The amount of sublet space relative to overall availability has decreased for a second straight quarter, and now represents 25.3% of all available space, the lowest since Q2 2020 and not appreciably higher than immediate pre-pandemic levels.”

Notably, Transwestern continues, sublet availability decreased in all three of Manhattan’s major submarkets, while total availability increased in both Downtown and Midtown South. Midtown was the only submarket to see a decline in total availability, aided by several new leases plus the withdrawal of a large block at 390 Park Ave. in advance of renovations.

“Availabilities will take time to descend from their current high level, but the uptick in market activity is a good sign. The slowdown in sublet additions will continue to be a key driver in lowering the overall availability rate,” it concluded.