Real estate in depth | 23 August 2021
SL Green Realty Corp. recently announced that law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC has signed a 101,394 square foot lease for 20 years at 919 Third Ave. Headquarters in New York.
NEW YORK. The Manhattan office market showed clear signs of emerging from the pandemic in the second quarter of 2021 as rental activity surged thanks to the signing of several major deals. Representatives of commercial real estate brokerage Transwestern Real Estate Services note that while the market has not returned to pre-pandemic levels, affordability has increased and rental rates declined in the second quarter with mixed results.
In the second quarter, tenants rented 4.4 million square feet of office space, up from 4.3 million square feet in the previous quarter. Around a dozen leases over 50,000 square feet have been signed, including four leases over 100,000 square feet. The sublease rate, which has increased over the past few quarters, has dropped significantly.
“The overall surge in market activity, especially with major leases during the quarter, is driving a return to the Manhattan office market,” said Rory Murphy, partner at Transwestern. “We are seeing an increase in confidence from tenants who want to capitalize on current market conditions and provide a long-term strategy in the city.”
Among the highlights of the report were the following:
• Total quarterly rents are 4.4 million square feet, roughly half of the five-year average before the pandemic of 9.4 million square feet.
• Approximately 18.2 million square feet were leased in the last four quarters, down about 46% from the previous four quarters from Q3 2019 to Q2 2020.
• Affordability increased to 18.2% for the eighth straight quarter of growth.
• Sublet affordability remained unchanged at 4.7%, representing 25.8% of total availability in Manhattan, down from 27.8% last quarter.
• Asking rents in Manhattan are down 1.8% quarter-on-quarter to $ 70.69 per square foot. The fall is less than what we saw in previous quarters.
• Rental rates are down 12.6% year-on-year and hit their lowest level since 2016.
“The operational timeline for the quarter and the move to the third quarter seems to be ‘cautious optimism,'” said Corrie Sluett, research manager at Transwestern. “Leasing activity is growing, availability is still growing, but stabilizing, and the level of rent continues to decline, but at a slower pace. There is certainly cause for optimism, although comparisons with historical figures certainly remind caution. The impact of the pandemic and its end will have a long tail, and while it is too early to tell how long it will last, it looks like we are heading in the right direction. ”
In its Market Watch section of the report, Transwestern states that after the collapse of Lehman in late 2008, it took about six quarters for overall availability to peak, and as the city approaches this benchmark in terms of COVID, “we are already seeing a slowdown in growth … in space additions from their recent madness. While overall availability did increase this quarter, the sublease to direct space ratio has tightened, partially offsetting the quarterly increase seen since mid-2020. ”
The firm added that concessions still exist, “but this is changing as tenants understand they need to act quickly to take advantage of these conditions.”
Transwestern closed its report with a statement: “With sports and concerts already underway, many of them operating at full capacity and Broadway reopening in September, New York is seeing an uptick in tourism again, benefiting restaurants, hotels and retail. This pent-up demand will become even more pressing in the second half of the year as the city becomes more open and both tenants and landlords realize that Manhattan is still the place to live. ”
Editor’s note: This report was released before the city introduced mandatory vaccinations for catering, entertainment and fitness, starting August 17. The COVID-19 vaccination program will begin on 13 September.