August Newsletter
Re-Occupying NYC – Office Market Bottoming Out
Leasing activity in Manhattan for the three months through June 30 totaled 3.47 million square feet, rising 20% from the first quarter, according to market sources. Other positive second quarter signs included Manhattan’s net sublet availability shrinking by 340,000 square feet.
The outlook is improving for the office market as business activity picks up and office usage and dining reservations continue to climb. Office usage rates for metropolitan New York increased to 21.7% in June, up from 13.9% in March according to access data from a major security firm. Major employers like Morgan Stanley and Bank of America are encouraging workers to return to the office as vaccination rates have increased.
Despite increased activity and office usage in the second quarter supply continues to outpace demand. Manhattan’s overall availability rate was 18.4% the second quarter, a 120-basis point increase from the first quarter. The office availability rate was only 11.5% pre-COVID.
The addition of cheaper sublet space and excess supply of direct options has led owners to lower overall asking rents by 8.6% since the beginning of the year. However, most if not all, of the asking rent decreases occurred in the first quarter. Asking prices were relatively unchanged for the overall market on a quarterly basis.
Positive indicators aside, it will take some time for New York’s office market to return to peak occupancy and rent levels. The Delta variant and recent uptick in COVID cases may slow the recovery process. However, Armano Real Estate remains optimistic about the office market outlook and recovery. Rents are bottoming or have bottomed out. We expect increases in office usage after Labor Day and further increases at the start of the New Year. We expect positive absorption rates resulting from increased employment in early 2022 and a subsequent increase in asking rents thereafter.
We, therefore, encourage tenants to proactively use this window of opportunity to engage the market and explore options to best reposition their corporate real estate.
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