Prepared by Richard Plehn, Lisa Ann Pollakowski and Vanessa Ollarves
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SUMMARY OF THE COMMERCIAL OFFICE MIDTOWN 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
ASKING RENT VS AVAILABILITY
In the Midtown area, the average rental price keeps decreasing, from Q2 2019 at $59.34 to this quarter, representing a reduction of $8.75; We can keep seeing this pattern in last quarter’s rents Q1 2024 at $52.75 to $50.59 in Q2 2024. The availability rate has been slowly declining in Midtown since Q2 2021 when it was 18.6%, versus today when it is 17.1%; however, in the last quarter, it increased by two basis points.
PLAZA DISTRICT AND GRAND CENTRAL HAVE THE LOWEST AVAILABILITY RATE
This excludes the UN Plaza market, which has a meager availability rate because there’s virtually no space in it. The two markets with the lowest availability rates are the Plaza District and the Grand Central Market District, with 14.8% and 16.10%, respectively. Murray Hill has the highest availability rate in the Midtown market and Manhattan, which is 25.3%.
LEASING ACTIVITY IN MIDTOWN WAS STRONGER THAN Q1 2019 AND Q3 2019
Leasing activity in Midtown for Q2 of 2024 was 6,164,453 rsf, which was an increase of 1,352,153 rsf from Q1 of 2024, and Q2 of 2024 was stronger than the Q1 and Q3 of 2019.
PLAZA DISTRICT DOMINATES LEASING ACTIVITY
Plaza District leads the submarket in leasing activity with 2,227,876 rsf, representing 36.14% even though it only represents 26.2% of the market. Penn Plaza/ Garment had the second most leasing, 1,872,011 rsf, representing 30.37 %, even though it only represents 25.7% of the market. Grand Central Market had the third most leasing, 1,149,235 rsf, representing 18.64 %, even though it only represents 16.9% of the market.
FLIGHT TO QUALITY
80.3% of the Leasing Activity in Midtown was completed in Class A buildings, increasing from 3.3 million rsf in Q1 of 2024 to 5.0 million rsf in Q2 of 2024. Leasing activity in Class A buildings in Q2 2024 was better than in Q2 2019, which was 4.4 million rsf.
5 LARGEST DEALS COMPLETED
In Q2 of 2024, all five largest deals exceeded 200,000 rsf, despite in Q1, only one deal exceeding that amount. Three out of the five largest deals were relocations. All five deals were done in Class A buildings and were expansions.
SUMMARY
Leasing activity has been dominated by financial service firms (i.e. hedge funds) for the past three years. Hedge funds typically want to lease space in trophy buildings, and as a result, space is scarce in Class A buildings that have great views and amenities. Therefore, rents are starting to increase steadily, and concession packages are going to decrease; When this happens, hedge funds will start to look at Class A buildings in other markets, which will increase rents in other areas in the Midtown market.
Note: If you want to see more reports, please click below, you will find Manhattan, Midtown South, Downtown and Overall market reports.
