Commercial Real Estate News
Manhattan Office Leasing Activity Down 29 Percent Annually in Q2
But upticks 14 percent over last quarter's leasing activities
According to CBRE's industry-leading Manhattan Figures Q2 2023 report, the second quarter of 2023 was not that much different than the previous one as general economic unease, high interest rates and a slow return to the office continued to weigh on office leasing.
While Q2 office leasing activity for Manhattan was up 14% quarter-over-quarter, the total of 4.39 million sq. ft. was down 22% from the five-year quarterly average of 5.66 million sq. ft. Moreover, year-to-date leasing activity totaled 8.24 million sq. ft., a 29% decline from the same time last year.
Renewals were prominent, totaling 1.29 million sq. ft. in Q2, bringing the year-to-date total to 2.78 million sq. ft. Manhattan's Q2 availability rate climbed 20 basis points (bps) from Q1 at 19.9% and was up 70 bps from a year ago. Net absorption was negative 884,000 sq. ft. in Q2, bringing the year-to-date total to negative 2.75 million sq. ft. At $77.22 per sq. ft., the average asking rent remained steady quarter-over-quarter and year-over-year.
"While the consumer and labor markets have shown tremendous resilience thus far, concerns over credit tightening and a potential recession continued temper office leasing," said Michael Slattery, CBRE's Director of Tri-State Research. "However, the market is bifurcated with some submarkets seeing strong activity while others are much slower. Long-term optimism about New York City's strength prevails as the market holds major appeal for occupiers seeking top talent."
Midtown was a mixed bag as leasing activity declined after a surge in mid-2022. At 2.53 million sq. ft. during Q2, leasing was 27% below its five-year quarterly average, while year-to-date leasing of 5.05 million sq. ft. was down 34% from the same time last year. However, net absorption was in positive territory for the first time since Q3 2022 at positive 243,000 sq. ft. The availability rate remained flat at 18.5%. According to CBRE's report, the market's average asking rent of $83.41 per sq. ft. during Q2 remained level quarter-over-quarter, but down 2% from the same time last year. Renewal activity was 864,000 sq. ft in Q2. Renewal activity accounted for 24% of all leasing velocity (new leases, expansions and renewals) so far in 2023--a figure in line with historical ratios of leasing and renewal activity.
The Midtown South market remained very soft in Q2, as it has for most of the year. At 729,000 sq. ft., leasing was 38% lower than the five-year average, while the year-to-date total was down 38% from the same time last year. The market posted negative net absorption of 679,000 sq. ft. during Q2 2023, and the availability rate climbed 80 bps quarter-over-quarter to 21.2%. The average asking rent in Midtown South of $82.82 per sq. ft. was essentially unchanged from the previous quarter. Renewals accounted for 40,000 sq. ft. in Q2, bringing the total for the year to 461,000 sq. ft.
Unlike Midtown and Midtown South, the Downtown market saw leasing activity above historical levels, propelled by one of the largest new lease transactions of the year, the 640,744 sq. ft. commitment by New York City Administration Children's Services at 110 William Street. As a result, leasing in Q2 totaled 1.13 million sq. ft., up 127% from the prior quarter and 14% ahead of the five-year quarterly average of 997,000 sq. ft. Downtown posted 448,000 sq. ft. of negative absorption in Q2, bringing the year-to-date total to negative 172,000 sq. ft., while the availability rate of 22.6% was up 50 bps from the previous quarter. Downtown's average asking rent of $57.77 per sq. ft. was flat quarter-over-quarter and year-over-year. Renewals totaled 386,000 sq. ft. in the second quarter of 2023, bringing the yearly total to 730,000 square feet.
