Prepared by Richard Plehn, Lisa Ann Pollakowski and Vanessa Ollarves.
Please click on the slideshow below for the full report. Alternatively, you can also follow the links on the button to read it on PDF or Powerpoint format.
SUMMARY OF THE COMMERCIAL OFFICE MANHATTAN MARKET- 2Q, 2024
NEW YORK CITY ECONOMY
The U.S. unemployment rate increased from 3.6% in June 2023 to 4.1% in June 2024; however, the New York City unemployment rate in June 2023 was 5%, and in June 2024, it decreased to 4.8%. The following areas experienced increased employment in New York City: Healthcare and Social Assistance, Professional and Business Services, and Leisure and Hospitality.
Landlords are having difficulty refinancing their office buildings because the U.S. treasury rate increased last year from 3.8% in June 2023 to 4.3% in June 2024. If a landlord is refinancing a mortgage, their new interest payment may be greater than the net income of the building. As a result, the landlord has a couple of choices:
- The landlord works with the lender to extend the loan for a few years.
- Pay down the mortgage and refinance.
- Renegotiate the mortgage with the lender
- Give back the office buildings to the lender
- Sell the office building
OVERALL MARKET
New York City’s average rental rate was $53.50 psf in Q2 2023, and $50.20 psf in Q2 2024. The availability rate decreased from 18.2% in Q2 2023 to 17.9% in Q2 2024; however, it remained the same as the previous quarter (Q1 2024).
LEASING ACTIVITY IMPROVED FROM THE FIRST QUARTER OF 2024
Leasing activity in Q2 in New York City was 1,704,519 rsf, better than in Q1 2024, which was 6,728,523 rsf. Midtown leasing activity was 4,812,300 rsf, 28% better than in the Q1 of 2024. Leasing activity in Midtown South was 1,348,324 rsf, 17.6% better than in Q1 of 2024. Downtown leasing activity was 682,701 rsf, 20% better than in Q1 of 2024.
MIDTOWN DOMINATED IN LEASING ACTIVITY
Leasing activity in Midtown was the highest of all three markets, accounting for 75.4% of all activity, even though Midtown represents 60% of the total market. Midtown South, which comprises 19% of the market, only accounted for 18% of all activity. Downtown, which is 21% of the market, only accounted for 6.6% of all leasing activity.
FLIGHT TO QUALITY
In Manhattan, 70.7% of leasing activity was done in Class A buildings with Midtown leasing activity in Class A Buildings accounted for 80% of all activity; Midtown South experienced 35% of its leasing activity in Class A Buildings; and Downtown experienced 65.5% of its leasing activity in Class A Buildings.
EACH MARKET HAD A SUBMARKET THAT DOMINATED THE LEASING ACTIVITY
Midtown has 8 Markets, and 36% of all leasing was completed in The Plaza Market. Midtown South has 5 markets, and 47% of all leasing was completed in the Gramercy Market. Downtown has 5 Markets, and 45.65% of all leasing was completed in the Financial District.
SUBLET AVAILABILITY RATE HAS BEEN TRENDING DOWNWARD
In NYC, the overall sublet availability rate has been trending downward from 23.5% in Q1 of 2023 to 20.7% in Q2 of 2024. The sublet availability rate in Midtown has been trending upward; Currently, it’s 19.8%. The Midtown South market has been trending downward from 28.47% in Q3 of 2023 to 14.93% in Q2 of 2024. The sublet availability rate in the Downtown market has been steady at 27.4% since Q4 2022.
THE PIPELINE FOR NEW OFFICE BUILDINGS BEING BUILT IS SHRINKING
The construction of buildings in NYC has been steadily decreasing from 29 buildings were being built, 17,115,000 rsf, in Q2 2021 to , 15 buildings being built, 6,160,000 rsf, in Q2 2024.
9 LARGEST DEALS COMPLETED
In Q2 of 2024, six of the nine largest deals were completed in Midtown, two in Midtown South, and one in Downtown, all in class A buildings. Seven out of nine were direct deals; six out of nine were relocations. This is a very positive sign because tenants typically don’t relocate when unsure about the economy or where their company is heading.
CONCESSION PACKAGES ARE WORTH 2 TO 4 YEARS RENT
Regarding the concession packages in Q2 of 2024 in Manhattan, the total value of the concession packages averaged $206.77 psf, which is $148.09 psf tenant improvement allowance and 10.3 months of free rent. Midtown had the most extensive concession packages averaging $219.98, comprised of $151.51 in tenant improvement allowance and 9.95 months of free rent.
SUMMARY
In summary, the overall market is improving. The Midtown market has recovered and is performing close to 2019. The Midtown South Market is starting to show signs of a recovery. However, the Downtown market is not seeing signs of recovery yet.
Note: If you want to see more reports, please click below, you will find Midtown, Midtown South, Downtown and Overall market reports.
