Manhattan’s office market showed renewed vigor in Quarter 2 of 2024, with leasing activity growing by almost 30% compared to Q1. This is equivalent to a total of 8.17 million square feet (SF) of office space leased, which is comparable to about 139 football fields. The list of the biggest lease transactions in Q2 2024 top-billed tech and media giant Bloomberg’s contract extension at 731 Lexington Avenue, covering nearly 950,000 SF, marking Manhattan’s largest lease since 2019. Completing the top five list were all new leases by clothing brand American Eagle Outfitters, coworking space innovator Industrious, law firm Covington & Burling, and business management consultancy Bain & Company.
The increase in leasing volume has been significant, with a year-over-year rise of almost 60%, positioning the market 19% above its five-year quarterly average. Notably, this surge reflects a positive trend, particularly as demand continues to rise in key sectors such as finance, insurance, real estate (FIRE), and technology, advertising, media, and information services (TAMI), which accounted for a combined 64% of leasing activity.
However, this growth comes amid ongoing challenges, such as a slight increase in New York City’s unemployment rate to 4.9% and a 6.6% decrease in asking rents compared to pre-pandemic levels in March 2020. Fortunately, Manhattan’s office availability tightened, and the positive absorption of 1.13 million SF marked the strongest performance in two years for the borough’s office market in commercial real estate. The top five lease transactions not only reflected the strength of the market but also highlighted the demand for prime office space across Manhattan, particularly for Class A properties, which accounted for 76.2% of total leasing volume.
Huge Demand for Prime Offices
Manhattan’s Q2 2024 leasing growth reflects a robust rebound in commercial real estate activity. Major transactions, such as Bloomberg’s lease extension, point to continued confidence in Manhattan’s long-term office market potential. The rise in new leases by key tenants like American Eagle Outfitters, Industrious, and Covington & Burling, amounting to over 1 million SF collectively, shows that companies are still willing to invest heavily in prime office space. Additionally, Manhattan’s quarterly positive net absorption of 1.13 million SF demonstrates growing demand and improving occupancy rates. This improvement is particularly significant given the lingering uncertainties in the broader economy, marking a turning point in Manhattan’s post-pandemic recovery.
The strength of Class A office buildings continues to drive the market, with this category representing 76.2% of total leasing volume. Companies across industries are prioritizing high-quality office space in premium locations like Hudson Yards and Midtown, further fueling demand. The FIRE and TAMI sectors dominated leasing activity in Q2, indicating that sectors critical to New York City’s economic infrastructure are recovering well. If the leasing trends persist, 2024 may outperform 2023’s total leasing volume, despite still being below pre-pandemic levels.
Gripping Sublet Spaces
Despite positive momentum, challenges persist in the Manhattan office market. The city’s unemployment rate of 4.9% in May 2024, slightly above the previous quarter, indicates that broader economic pressures still weigh on the recovery. Rent concessions continue to be an issue, with asking rents decreasing for the fourth consecutive quarter, dropping by 0.3% to an average of $74.26 per SF. This reflects the competitive leasing environment, where landlords face pressure to offer incentives to attract tenants. The sharpest pricing drops occurred in submarkets like Hudson Yards/Manhattan West, where a 4.7% decrease was recorded due to an influx of below-average priced sublet space.
Sublet availability remains a key challenge, with 20.44 million SF of sublet space on the market, an increase of 71.7% since March 2020. Although the sublet inventory has tightened slightly in recent months, the excess supply continues to impact rental rates and overall market conditions. Furthermore, the availability rate of 17.9% reflects the substantial space still available, posing a challenge for market stabilization as Manhattan’s commercial real estate sector works to regain pre-pandemic activity levels.
Focus on Stabilization
Manhattan’s office leasing market showed encouraging signs of recovery in Q2 2024, with significant leasing volume gains and positive absorption, particularly in Class A spaces. The top five lease transactions demonstrated strong demand for premium office locations, with global players committing to extended and new leases across Manhattan’s key submarkets. However, challenges such as rising unemployment, decreasing asking rents, and a significant volume of sublet space remain persistent obstacles to full recovery.
As the office market navigates the delicate balance of demand, supply, and pricing, the second half of 2024 is crucial in determining the market’s trajectory. While the recovery is underway, the Manhattan office market must address economic headwinds and evolving tenant preferences to ensure continued growth and stabilization in the years ahead.
Reference:
NYC Q2 2024 Manhattan Office Report, Colliers International
