The Manhattan office market has witnessed resilience in leasing activity in 2024, positioning it to surpass the entire leasing volume of 2023 well before the year’s end. A notable increase in new leases and renewals, particularly in high-quality Class A properties, has driven this surge. The financial services sector remains a key player, accounting for a substantial portion of the year’s leasing activity, even as other office-using employment sectors experience declines. This growth comes amid a wider context of economic uncertainty, including fluctuating employment trends and an overall softening in office-using job sectors in Q3 2024.
Manhattan’s leasing market demonstrates significant resilience, particularly in Midtown, where demand for premium spaces is pushing rental rates higher. While Midtown leads in leasing volume, Midtown South and Downtown are also showing robust activity, with Midtown South experiencing the most notable rise in new leases. However, overall vacancy remains elevated, and while some spaces are being removed from inventory due to residential conversions, these changes are unlikely to immediately impact vacancy levels. The market’s performance in 2024 highlights a complex mix of optimism and ongoing challenges for New York City’s commercial real estate.
Continued Demand for Class A Spaces
Manhattan’s office market continues to show strength, with 5.3 million square feet (msf) of new leases signed in Q3 2024. Although this represents a 15.9% decrease from the previous quarter, it’s still the second-highest quarter in two years and a substantial increase over the 2023 quarterly average. Year-to-date (YTD), leasing activity has accelerated by 31.1%, reaching 16.7 million square feet.
New and renewal leases until October 2024 had already outpaced the total leasing activity of 2023, driven by a steady influx of transactions in premium Class A office spaces. This demand for high-quality buildings, especially in Midtown, has pushed Class A rental rates upward, reflecting limited availability of desirable space. Midtown alone registered 11.4 msf YTD new leasing, marking a 31.4% increase from 2023. Additionally, large-scale renewals and expansions, particularly in the Park Avenue submarket, highlight the sustained interest in maintaining and upgrading prime office locations.
The continued demand for Class A space in Q3, particularly from the financial services sector, has positively impacted on the market’s dynamics. The sector alone accounted for over a third of all YTD leases, exceeding 10,000 square feet. The financial services also saw steady job growth with 506,700 jobs, a year-over-year uptick of 3,000 jobs.
Dip in Office Employment
The Manhattan office market continues to face challenges, with no new developments and persistent negative absorption in Q3. No new office developments started for the second straight quarter and companies have vacated a total of 7.6 msf YTD of office space. This overshadowed the slight dip in direct vacant space by 0.7% to almost 77 msf and the decline in sublease space of nearly 3% to 22 msf. This marks the lowest level of sublease space in a year, signaling that fewer office spaces are being offered for sublease.
The city’s labor market adds to the uncertainty, particularly in sectors heavily reliant on office space. Office-using employment saw a decline of 19,300 jobs in Q3, driven mainly by contractions in information services and a slowdown in education and health services. While the financial sector remained a beacon of growth, other segments experienced setbacks, highlighting the uneven recovery in the office market. This dichotomy raises concerns about the depth and sustainability of Manhattan’s leasing revival, particularly if broader economic conditions do not improve.
Resilient but Vulnerable
Manhattan’s office market is riding a wave of leasing momentum that has carried it beyond the performance of 2023, yet it faces a series of hurdles that cloud the longer-term outlook. Strong leasing demand in high-quality Class A buildings suggests that Manhattan continues to attract tenants willing to pay a premium for desirable locations, especially as competition for top-tier space intensifies. This demand has kept Midtown’s market particularly robust, cementing its position as the city’s leading commercial hub. In the short term, the continued interest in Class A properties is likely to drive up rental rates, benefiting landlords with prime assets.
However, the underlying challenges cannot be overlooked. Vacancy remains a concern, and negative absorption trends reflect ongoing struggles to fill the abundant available space, particularly in lower-grade properties. The limited impact of residential conversions and the uneven performance across office-using employment sectors suggest that the market is still in a state of flux. Looking ahead, the trajectory of the Manhattan office market will depend on broader economic conditions and the city’s ability to navigate structural shifts in how businesses use office space in a post-pandemic world. For now, the market shows both resilience and vulnerability, embodying the complexities of New York City’s evolving commercial landscape.
Reference:
MarketBeat Manhattan Office Q3 2024, Cushman and Wakefield
