NEW YORK ECONOMY
Unemployment increased from 4.5% in September 2022 to 5.2% in May 2023. The Civilian Workforce in New York City grew from 4,074,030 in August 2022 to 4,180,032 in August 2023. Office workers are working from home more than last year. Kastle Systems is one of the leading providers of card key access in office buildings in New York City. Kastle Systems tracks employees commuting to work. Occupancy increased from 43.6% on an average weekly basis as of 10/05/22 to 49.4% on an average weekly basis as of 10/05/2023.
OVERALL MARKET
In New York City, the market availability rate decreased from 18.3% in Q2 2023 to 17.6% in Q3 2023. Rents fell from $53.69 in Q2 2022 to $52.28 in Q3 2023. Availabilities and Rents decreased in Midtown, Midtown South, and Downtown.
Availability versus Vacancy
The availability rate has fluctuated from 18.3% to 17.6% for the past two years. However, the Vacancy rate has steadily increased from 12.1% in Q2 2021 to 14.7% in Q3 2023. Availability rate, also known as the availability index, refers to the proportion between two values: The total space available in a market compared to the sum of vacant space that is immediately available and space already being marketed because it’s occupied by a tenant whose lease is about to expire.
Leasing Activity
19,156,908 was leased this year. Leasing activity for the year is projected to be better than in 2020. However, the 2023 Leasing activity should be less than in 2021 and 2022. 63% of leasing was completed in Midtown.
Flight to Quality
Tenants have been relocating to better buildings. 61 % of all leasing transactions have been completed in Class A buildings. In Midtown, 76% of all leasing has been completed in Class A buildings. In Downtown, 72% of all leasing has been completed in Class A buildings. However, 76% of all leasing has been completed in B Class buildings in the Midtown South class.
Tenants are leasing smaller spaces
The average size deal in Midtown is 21% less than in 2019. The average size deal in Midtown South is 38% less than in 2019. The average size deal in Downtown is 42% less than in 2019.
10 LARGEST DEALS COMPLETED IN THE FIRST HALF OF THE YEAR
Seven of the ten largest deals for Q3 2023 were completed in Midtown. Leasing activity for tech continues to be slow in New York City. Of the ten most significant deals, there was only two tech company..
SUMMARY
In summary, tenants are upgrading from B and C to class A buildings. The tenants are typically leasing less space. Landlords who own B and C buildings in Midtown and Downtown may need to lower their rents and increase concession packages to retain their tenants. These landlords may need to increase the amenities they have in their buildings. However, Landlords who own Class B Buildings in Midtown South may need to adjust their rents and concession package to the market. They may not need to install amenities in their buildings.
