Strong August Office Leasing Volume Comes With Catch

At first glance, it appears Manhattan office landlords had something to celebrate in August. But not all is what it seems.

Companies leased 2.5 million square feet in the borough last month, Crain’s reported. The data comes courtesy of Colliers, which noted that August represented the fourth consecutive month of increased activity in the market.

That leasing volume doesn’t solely count new leases. More than a quarter of the activity stems from law firm Davis Polk & Wardwell’s extension at RXR Realty’s 450 Lexington Avenue. That renewal added up to more than 700,000 square feet, but only 30,000 of that space is new.

Leasing activity fell a whopping 25.6 percent year-over-year. The borough is on track to experience a 10.5 percent drop in leasing activity from 2022 to 2023. The vacancy rate remained tethered to the previous month’s 17.8 percent and 96 million square feet remain available in Manhattan.

Among the three neighborhoods Colliers tracked, Midtown experienced the strongest month of leasing with 1.3 million square feet taken, with more than half came from the deal at Scott Rechler’s property. Midtown South saw 771,000 square feet leased in August, while Downtown trailed behind at 445,000 square feet.

If there’s a positive takeaway from last month’s activity for office owners, it’s the steadying of asking rents. The average asking rent ticked upwards — albeit modestly — for the fifth consecutive month, hitting $75.70 per square foot. That’s the highest average since October 2020; Asking rent in Midtown South reached $82.78 per square foot, a record for the neighborhood.

That’s still not what landlords were asking for before the pandemic changed everything. In March 2020, the average asking rent was $79.47 per square foot, demonstrating the gulf that has grown in the last three years as supply and demand drastically veered off course.

— Holden Walter-Warner