Manhattan Office Availability Rate Sets Another Record

The office availability rate in Manhattan set a new record of 17.9% in the third quarter, the fourth consecutive quarterly increase in availability in the borough.

The available supply in Manhattan has increased nearly 80% since March 2020 to a record high of nearly 97M SF, according to a Q3 2023 report from Colliers.

Negative net absorption in Manhattan totaled minus 525K SF in Q3, a significant improvement over the minus 3.8M SF recorded in Q2 2023.

Leasing activity surged to 6.5M SF in the third quarter from the Q2 total of 5.1M, with most of the increase coming from two deals: Davis, Polk & Wardell’s 710K SF extension and expansion at 450 Lexington Avenue and NYC’s 641K SF lease at 110 William Street.

The year-to-date leasing velocity totaled 19M SF, a 21.4% decrease from the 24M square feet recorded during the same period in 2022. If demand continues at the same pace for the remainder of this year, 2023′s total leasing volume will fall nearly 13% below the 29M SF total for 2022.

Manhattan’s FIRE (financial services, insurance and real estate) sector led leasing by industry in the third quarter, with 31% of the activity; the public sector, was second in activity 23% of the office leasing volume, followed by the professional services industry at 22%, Colliers said.

“New York City’s capital markets remain stressed through Q3 2023 through ambiguous valuations amplified by troubled fundamentals, investor risk-aversion and the pull-back of loan originations by traditional debt providers,” the Colliers report said.

As a result, office investment sales for the third quarter dropped 83%, year-over-year, to $200M-one of the lowest quarters on record.

“Tenant demand picked up considerably this quarter with a wide range of sectors contributing to the velocity,” said Franklin Wallach, executive managing director of Research & Business Development at Collier’s New York office.

“However, supply still outpaced leasing velocity in many pockets of Manhattan as upcoming large blocks of vacant space from tenant relocations will continue to place pressure on the market,” Wallach said.

“While sublet supply has tightened, rumored future dispositions could reverse this trend,” he added.

Midtown South ended the third quarter with a record-high availability rate of 18.6%, the submarket’s fourth consecutive increase in the rate. At nearly 36M SF, Midtown South’s total available supply increased by more than 19% since September 2022.

After increasing for three consecutive quarters, Midtown’s availability rate remained level at 16% in Q3, despite additional large blocks of space added to the available inventory at 825 Eighth Avenue, 850 Third Avenue and 1166 Avenue of the Americas.