Commercial Real Estate News
Manhattan Office Leasing Activity Lags in Q3 as Sentiment Remains Cautious
According to CBRE's Q3 2023 Manhattan office data, Manhattan saw some positive absorption leading to a decline in the availability rate in the third quarter of 2023, but lagging leasing activity reflects cautious market sentiment.
Office leasing activity totaled 4.30 million sq. ft. in Q3, considerably behind the five-year quarterly average of 5.54 million sq. ft. The availability rate was down 10 basis points (bps) from last quarter at 19.8% but was up 100 bps from a year ago. Net absorption was positive 323,000 sq. ft. in Q3, bringing the year-to-date total to negative 2.42 million sq. ft. Year-to-date leasing activity totaled 12.55 million sq. ft., down 33% from the same time last year.
Amid economic uncertainty, renewals were once again prevalent in the market, totaling 1.66 million sq. ft. in Q3, bringing the year-to-date total to 4.44 million sq. ft. At $76.38 per sq. ft., the average asking rent was down 1% quarter-over-quarter but flat year-over-year. The sublease availability rate was down 20 bps from last quarter at 4.9%, with the average asking rent down 4% from a year ago to $56.56 per sq. ft.
"Lagging leasing activity means tenants are still bracing for an economic slowdown, and sentiment is expected to remain cautious through the rest of the year," said Michael Slattery, CBRE's Director of Research, New York Tri-State. "However, there are some bright spots in the market, particularly in Midtown, where availability has tightened and demand is focused on select prime assets and certain highly desirable neighborhoods. There is also healthy demand in the pipeline, but it is slow moving, which will keep velocity at a below-average pace in 2023."
The Midtown availability rate was down 40 bps from last quarter at 18.1% but was up 70 bps from a year ago. Net absorption was positive 867,000 sq. ft. in Q3, bringing the year-to-date total to positive 329,000 sq. ft. Leasing activity totaled 2.87 million sq. ft. in Q3, 16% behind the five-year quarterly average of 3.40 million sq. ft., and year-to-date leasing activity totaled 7.92 million sq. ft., down 35% from the same time last year. At $82.68 per sq. ft., the average asking rent was flat both quarter-over-quarter and year-over-year. Renewals totaled 1.27 million sq. ft. in Q3, bringing the year-to-date total to 2.86 million sq. ft. The sublease availability rate was down 20 bps from last quarter at 4.3%, with the average asking rent down 6% from one year ago to $59.74 per sq. ft.
The Midtown South market continued to struggle in Q3, with leasing activity of 814,000 sq. ft. significantly behind the five-year quarterly average of 1.14 million sq. ft. Year-to-date leasing activity totaled 2.38 million sq. ft., down 44% from the same time last year. Renewals totaled 132,000 sq. ft. in Q3, bringing the year-to-date total to 593,000 sq. ft. The availability rate was up 50 bps from last quarter at 21.7% and was up 250 bps from a year ago. Net absorption was negative 406,000 sq. ft. in Q3, bringing the year-to-date total to negative 2.44 million sq. ft. At $81.73 per sq. ft., the average asking rent was down 1% quarter-over-quarter but flat year-over-year. The sublease availability rate was up 10 bps from last quarter to 4.9% with the average asking rent down 9% from one year ago to $60.87 per sq. ft.
After a significant improvement in Q2, the Downtown market saw leasing activity slow to 620,000 sq. ft. in Q3, 37% behind the five-year quarterly average of 992,000 sq. ft. Year-to-date leasing activity totaled 2.25 million sq. ft., down 4% from the same time last year. Renewals totaled 254,000 sq. ft. in Q3, bringing the year-to-date total to 984,000 sq. ft. The availability rate was up 20 bps from last quarter at 22.8% and was up 30 bps from a year ago. Net absorption was negative 137,000 sq. ft. in Q3, bringing the year-to-date total to negative 309,000 sq. ft. At $57.19 per sq. ft., the average asking rent was down 1% quarter-over-quarter but flat year-over-year. The sublease availability rate was flat from last quarter at 6.9%, with the average asking rent up 2% from one year ago to $48.02 per sq. ft.
