Prepared by Richard Plehn, Lisa Ann Pollakowski and Vanessa Ollarves.
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SUMMARY OF THE COMMERCIAL OFFICE MIDTOWN SOUTH MARKET – Q3 2024
NEW YORK CITY ECONOMY
The United States’ monthly civilian labor force for September 2024 was 168.6 million, an increase from 167.8 million in 2023. However, unemployment increased to 7.2 million (4.1% unemployment rate) in September 2024 from 6.2 million (3.7% unemployment rate) in September 2023.
NYC’s monthly civilian labor force for September 2024 is 4.3 million, an increase from September 2023’s 4.2 million. However, unemployment increased to 227,900 (5.3% unemployment rate) in September 2024 from 218,400 (5.2% unemployment rate) in September 2023. Although employment is increasing in NYC, the new jobs are predominantly in lower-paying industries.
The U.S. 10-year treasure bill decreased to 3.74 % in September 2024 from 4.61% in September 2023. As a result, company valuations will increase, helping real estate owners and companies refinance debt at a lower rate.
ASKING RENT AND AVAILABILITY DECREASED
Midtown South rent steadily decreased yearly, from $55.32 in Q3 2023 to $53.38 in Q3 2024. The availability rate in Q1 2024 was 20.5 % (the highest in the last 5 years), decreasing to 19.2% (-1.3%) in Q3 2024.
LEASING ACTIVITY KEEPS INCREASING
In Q3 2024, leasing activity in Midtown South was 1,638,016 sf, increasing by 390,719 sf from 1,247,297 sf in Q3 2023. We are expecting leasing activity to be 6,096,317, which is better than 2023 (5,791,116) but not as good as 2022 (i.e., 8,452,672).
CHELSEA DOMINATES LEASING ACTIVITY
In this quarter, Chelsea dominated the leasing activity with 51.92%, dethroning Gramercy Park, which is second with 24.41%. The following tenants renewed in the Chelsea area: Google, located at 85 Tenth Avenue, renewed for 296,775 rsf. The Ramp at 28-40 West 23rd expanded and renewed for 132,000. Cole Hahn, located at 620 Avenue of America, renewed for 62,262 rsf.
CLASS B DOMINATES THE LEASING ACTIVITY
In Midtown South, 56.2% of leasing activity was in Class B buildings and 26.3% in Class A buildings. This is the opposite in the Midtown and Downtown Markets.
5 LARGEST DEALS COMPLETED
In Midtown South, three out of the five top deals were in the Chelsea market, three out of five were renewals, and two were relocations. Three of the top deals were in Class A buildings, and two were in Class B buildings.
CONCESSION PACKAGES INCREASED FROM Q2 2024 TO Q3 2024
The concession package (free rent plus landlord’s contribution) in Q3 2024 was $227.96 versus $209.09 in Q2 2024. Q3 2024 free rent was 10 months and 5 days versus 9 months and 7 days in Q2 2024 (assuming a 30-day month). The landlord cash contribution towards tenant’s build out for Q3 2024 was $171.89 versus $156.22 in Q2 2024.
MIDTOWN SOUTH IS BEGINNING TO RECOVER
Leasing activity in Midtown South continues to increase each quarter, which is a positive sign. Amazon announced they wanted their employees back to work 5 days a week. As a result, other tech companies will also want employees back to work for five days. The Midtown South office market will benefit because tech companies need more space to accommodate their employees.
Venture capital is investing a large sum of money into artificial intelligence companies. Midtown South will benefit because these companies want to be located in Midtown South. For example, Open Ai leased 90,000 rsf at the Puck Building in Soho.
