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 MARKET- Q4 2024 OVERVIEW
NEW YORK CITY ECONOMY
The United States’ monthly civilian labor force for November 2024 was 168.4 million, an increase from 167.1 million the past year. However, unemployment rate increased to 7.1 million (i.e., 4.2% unemployment rate) in November 2024 from 6.2 million (i.e., 3.7% unemployment rate) in November 2023.
NYC’s Monthly civilian labor force for November 2024 is 4.3 million, an increase from November 2023’s 4.2 million. However, unemployment in NYC increased to 230,000 (i.e., 5.4% unemployment rate) in November 2024 from 225,000 (i.e., 5.3% unemployment rate) in November 2023.
Even though New York City’s economy deteriorated, this can be attributed to the transition of power in the United States from the Democrats to the Republicans.
OVERALL MARKET
New York City’s rental rate was $49.99 psf in Q3 2024, but it increased to $50.51 psf in Q4 2024. The availability rate is currently 16.4%, the lowest since Q1 2021. The availability rate dropped in Midtown and Midtown South, while Downtown remained the same.
HIGHEST LEASING ACTIVITY SINCE 2020
New York City’s leasing was 37,468,413 rsf in 2024, an increased by 6,000,000 rsf from 2023. 9,597,900 was leased in the 4th quarter. The top ten deals comprised half of all leasing activity in NYC.
LEASING ACTIVITY IS PROJECTED TO BE BETTER THAN 2023
New York City’s leasing activity has been increasing every period. In Q2 2024, it was 8,433,052 rsf, and Q3 2024, it is 8,971,013 rsf. Leasing activity should be better than in 2023, however, it will not be as strong as in 2022.
THE MIDTOWN MARKET STILL DOMINATED IN LEASING ACTIVITY
Leasing Activity in Midtown is still the highest out of all 3 markets, comprising 78% of the leasing activity in New York City, even though it only has 60% of the market. Downtown represented 6 % of all leasing activity, even though it comprises 21% of the market.
LEASING ACTIVITY BY CLASS
76.3% of leasing activity occurred in Class A Buildings, 80.6% in Midtown, and 67.2% in Downtown. In Midtown South, only 31.9% of leasing activity took place in Class A buildings. However, 48.6% of all leasing activity in Midtown South occurred in Class B buildings.
NINE OUT OF THE 10 LARGEST DEALS COMPLETED WERE RENEWALS
In Q3 2024, eight out of the 10 top deals were completed in Midtown, one in Midtown South, and one in Downtown. Eight out of 10 deals were done in Class A and two in Class B buildings. All of them were direct deals, and nine out of 10 were renewals. Six out of 10 deals were expansions, and only four remained with the same square footage.
CONCESSION PACKAGE INCREASED AND LENGTH TERM INCREASED
The concession package increased from Q4 2023 to Q4 2024, and the average term length increased to 87.00 months from 81 months in Q4 2023.The overall concession package (free rent and landlord contribution) increased from Q2 2024 $206.77 to Q3 2024 $214.53. The landlord increased the contribution towards tenant’s installation from Q2 2024 $148.09 psf to Q3 2024 $156.68 psf. The landlord decreased the free rent from Q2 2024 $58.6 psf (10.03 months free rent) to Q3 2024 $57.95 psf (10.22 months). * Compstack.
CONVERSION OF OFFICE TO RESIDENTIAL CONTINUES
Approximately 11,000,000 rsf of office buildings are in various stages of conversion. These conversions occur in Midtown, Midtown South, and Downtown. In the fourth quarter, new ownership of 767 Third Avenue announced that the building is being converted. It was also announced that David Werner had just purchased 675 Third Avenue from the Durst Family. He will most likely convert the office building into a residential building.
CMBS LOANS
Over 80 office properties, or 60,000,000 rsf, will have office building loans due in the next two years. For thirty-six of the office building loans, the owners are paying less than 4% interest. When these loans become due, the interest rates will increase to 7%. As a result, the owner will need to modify or pay down the loan. During the negotiation between the office building owner and the lender, tenants will have difficulty making deals.
THE PIPELINE FOR NEW OFFICE BUILDINGS KEEPS DECREASING
As noticed in previous reports, the pipeline for new offices buildings keeps decreasing, in Q4 2023 there were 27 building being built, representing 17.2 million sf, in Q4 2024 there are only 14 building being built representing 5 million sf.
10 LARGEST DEALS COMPLETED
In Q4 2024, eight out of the ten top deals were completed in Midtown and two in Midtown South. Ten out of ten were done in Class A buildings. Five out of ten were renewals and five relocations.
SUMMARY
As the years have passed since the pandemic, tenants feel they can make long-term commitments because they see a future in their businesses. Corporations are instituting a policy that employees can not work from home. As a result, corporations will need to lease more space to accommodate the employees returning to work. As buildings get converted to residential, the office inventory will decrease. As a result, the availability rate will decrease, Landlords will be able to increase rents and decrease concession packages.
