Manhattan’s office market taking off like a phoenix! As of August 2023, the national availability rate has fallen to just 15%, its lowest point since January 2021. This trend is especially impressive given that the availability rate has either held firm or continued to tighten for the past 18 months straight. This resurgence in the need for office space has resulted in demand for a truly unprecedented boom in leasing activity. After dipping slightly last month, leasing activity in August jumped more than 20% from July, reaching an astounding 3.7 msf.
August’s leasing numbers were an improvement over July’s. They surpassed the 10-year monthly average of 2.72 million square feet, indicating a robust recovery in the sector. Manhattan offices, meanwhile, are unexpectedly experiencing a reverse trend with a slightly increasing average asking rent. It is currently $74.73 per square foot, a 1% increase from last month. Rents are still 6% below where they were in March 2020. This decrease occurred even before the pandemic caused further turmoil in the housing market.
If demand trends seen thus far in 2023 continue, Manhattan will see its annual office leasing volume return to levels above 40 million square feet. That would be the first time achieving that milestone since 2019. Amazon’s deep, unprecedented investments in their infrastructure amplify this as a possible area of growth. Since November 2024, they have rented more than 1 million square feet of Manhattan office space.
Taking office space off the market has greatly inflated average prices throughout Manhattan. It quickly became clear that this change drastically altered the real estate picture across the region. According to Colliers, almost 9 million square feet of office space has disappeared from the Manhattan marketplace. That’s a functions withdrawal of the largest order over the last four years. Yet the availability rate for this new generation of office spaces has fallen to a remarkable 6.7%. This is in sharp contrast to the 17% availability rate for historic, older, prewar buildings.
In 2024, Manhattan’s leasing volume returned to pre-pandemic averages for the first time since COVID-19 began affecting commercial real estate dynamics. This year had the highest level of leasing activity in recent memory from law firms. They ended up leasing more than 4 million square feet!
Franklin Wallach is executive managing director, research & business development at Colliers. He provided some really interesting context on this good trend that is just starting to break through in the market. Beyond that, he noticed an important market trend emerging, a “flight to quality.” New builds such as One Vanderbilt and Hudson Yards are experiencing historic levels of tightness.
“You also very much had flight to quality. New construction such as One Vanderbilt, Hudson Yards, Manhattan West, where availability has become very tight in that new product.” – Franklin Wallach
Wallach further elaborated on the implications of the recent rent increase:
“If you have a 1% increase during the month, that is a significant movement. Some of that is above-average-priced space coming onto the market, but we’ve also begun to see more landlords reprice their existing space higher.” – Franklin Wallach
For one, he characterized the entire market as “very strong as far as demand,” citing a number of reasons for this resurgence.
“Certainly a return to office is a part of that — and low unemployment. You also have a reemergence of some key industries that were a little quieter during the pandemic years, not that they ever went away, but tech in particular comes to mind.” – Franklin Wallach