Manhattan Office Leasing Plummets in Brutal Fourth Quarter

Manhattan office landlords hoping for continued recovery in the market this holiday season were mostly met with a lump of coal.

Office leasing in the borough plummeted 43 percent year over year in the fourth quarter, with tenants taking just 4.9 million square feet in the final three months of 2022, the lowest quarterly total since the second quarter of 2021, according to Colliers.

It was also an abrupt decline from the third quarter — 47 percent — marking the sharpest quarter-to-quarter drop since the start of the pandemic. Manhattan’s office availability rate increased for the first time in a year, rising 0.5 percent from the third quarter, though it’s still down 0.4 percent from the end of 2021.

The amount of available office space in the borough has increased almost 70 percent since the onset of the pandemic to 91.4 million square feet, and after 2.8 million square feet of negative net absorption in the fourth quarter, net absorption since the start of the pandemic now stands at negative 37.6 million square feet.

Declines throughout

The dropoff in demand was consistent across the borough’s three primary office districts: Midtown, Midtown South and Downtown.

Midtown recorded 2.4 million square feet of leasing volume in the fourth quarter, its lowest since the second quarter of 2021. Volume was down almost 47 percent from the previous quarter and more than 50 percent year over year. The market had a negative net absorption of more than 393,000 square feet, compared to 2.6 million square feet of positive net absorption in last year’s fourth quarter.

Midtown South also recorded its lowest quarterly leasing volume since the second quarter of 2021. The 1.9 million square feet leased represented a quarterly decline of 44 percent and a year-over-year dropoff of almost one third. The market had a negative net absorption of 2.5 million square feet, its highest in nearly two years.

Downtown recorded just 638,000 square feet of leasing volume, a quarterly decline of 51 percent and a year-over-year decrease of nearly 36 percent. The market did, however, achieve a positive net absorption for the first time in two years at over 140,000 square feet.

Midtown and Midtown South saw their availability rates increase 0.2 and 1.3 percent, respectively, from the third quarter, while Downtown saw its availability rate decrease for the first time since before the pandemic. Only Midtown’s availability rate was down year-over-year.

Office investment also took a nosedive in the fourth quarter amid high interest rates. Manhattan saw $1 billion in sales volume in the final three months of the year, an 85 percent dropoff from 2021 for the largest annual decline in five years. The median sale price was $725 per square foot, down from $874 the previous year.

Asking rents tick upward

Still, a brutal fourth-quarter performance was not enough to erase all of last year’s recovery.

Leasing volume for the full year totaled 29.1 million square feet, a nearly 17 percent increase from 2021, though still 12 percent below the borough’s ten-year rolling average.

And despite the slowdown in demand, average asking rents ticked up almost 2 percent in the quarter to $75.41 per square foot. That figure was partially buoyed by low-priced spaces being removed from the market, Colliers said. Manhattan’s average asking rent increased 0.5 percent over the course of the year.

The borough also achieved a positive net absorption of 1.3 million square feet last year, up from 17.3 million square feet of negative net absorption in 2021.

The average asking rent for Class A space increased 2.5 percent in the fourth quarter to $81.51 per square foot, bringing it closer to the $84.50 recorded in the fourth quarter of 2019. Rents for Class B were relatively unchanged, while Class C buildings saw average prices decline 1.5 percent.

After three consecutive quarterly decreases, Midtown’s average asking rent increased from $78.61 per square foot to $79.22 in the quarter, although it is still down from the end of 2021, when it was $79.95. Midtown South saw its average asking rent increase 2.3 percent from the previous quarter and 3.8 percent year over year to $81.52. Downtown’s average asking rent increased quarterly by 1.8 percent to $59.73, but was down 0.7 percent year-over-year.

Tenants in the financial, insurance, real estate and legal were responsible for 38 percent of leases signed last quarter. Occupants in the technology, advertising, media and information sectors accounted for 23 percent of leases signed.

Among the fourth quarter’s biggest leases were Stifel Financial Corp renewing for nearly 215,000 square feet at 787 Seventh Avenue, Ann Taylor parent Ann Inc. renewing and expanding to over 191,000 square feet at 7 Times Square and Medidata Solutions renewing for more than 176,000 square feet at 350 Hudson Street.

Notable investment sales to close last quarter were Vornado Realty Trust selling 40 Fulton Street for $101 million, the former AIG headquarters at 175 Water Street trading hands for $252 million and SL Green unloading more than half of the Lipstick Building at 885 Third Avenue to Memorial Sloan Kettering for $300 million.