NYC Office Pipeline Begins to Shrink
New construction is already trailing new deliveries in Manhattan with only 2.1 million square feet of new office development starts to-date since the beginning of last year.
New York City’s office construction pipeline is starting to contract. A new report from Commercial Edge has taken a close look at new construction starts in the last several years to forecast the trajectory of new supply. Since the beginning of 2021, developers have started new projects totaling a mere 2.1 million square feet, signaling a contraction in new construction activity, according to the report.
Already, new construction is trailing new deliveries. With 19 million square feet of office product under construction in Manhattan, the vast majority of which was started prior to 2021, new deliveries in 2022 and 2023 will surpass new supply in 2020 and 2021, increasing the current office stock by about 4%. However, with new start decreasing, new supply deliveries will likely begin to plummet in 2024 and continue to fall through 2027.
To put the new construction starts stats into perspective, Commercial Edge notes that there were 3.2 million square feet of office starts in 2019 and 5.7 million square feet of office starts in 2020. With only 2.1 million square feet of new starts since the beginning of 2021, including the first months of this year, it is easy to see how construction activity is waning. In the last six months, the total amount of new office space under construction fell by 10 million square feet.
The pandemic is behind the slowdown. In the last two years, people have opted to move away from major gateway markets, like New York City, in favor of smaller metropolitans. Work-from-home played some roll, untethering professional life and personal life, as did major corporate relocations, like Oracle, Tesla and Hewlett-Packard Enterprise, all of which moved from California to Texas. In fact, 15% of all office starts last year were in either Dallas or Austin, according to Commercial Edge. Other popular markets for big city transplants—a list that includes Miami, Nashville and Raleigh-Durham—also saw a significant increase in new office construction, as well as life science hubs in the Bay Area and Boston. These markets have set the pace for the office recovery in the US, according to earlier research from CBRE and NAR, which noted these cities are outperforming major metros in office occupancy rates and rents.