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 link on the button to read it on PDF.
SUMMARY OF THE COMMERCIAL OFFICE MARKET MIDTOWN SOUTH – Q1 2025
NEW YORK CITY ECONOMY
New York City’s economy showed positive growth with the civilian labor force expanding to 4.3 million in March 2025 from 4.2 million in March 2024. There were 20,800 jobs added to the market over the year. Sectors like healthcare and tech led gains, and transit and tourism improved, including a 16% rise in Broadway attendance. There was a 70-basis point increase in hotel occupancy rate.
Today, the government is decreasing federal fundings to non-profits, defense contractors, etc. This could have a negative effect on the commercial real estate market; however, the federal government may reverse the funding back to these organizations. Tenants are concerned about the federal trade policies representing a factor that could either positively or negatively influence the national economy and, by extension, the commercial real estate market.
MIDTOWN RENTS AND AVAILABILITY VS PRE-COVID LEVELS
In the latest quarter, Q1 2025, average asking rents have dropped by 2.3% to $52.3 from $54.6 in Q4 2024. The current asking rent is lower than the pre-COVID average asking rent of $63.84.
The availability rate has also decreased by 1.5% to 17.1% in Q1 2025 from 18.6% in Q4 2024. The current availability rate is higher than the pre-COVID average of 9.1%.
THE ACTUAL AVAILABILITY IS LIKELY 3% TO 5% BELOW THE STATED RATE
In Midtown South, leasing opportunities are unavailable in certain office buildings because the landlord is either renegotiating the debt or converting the buildings to residential. Tenants are hesitant to make deals in buildings where Landlords are renegotiating their debt which could reduce availability by up to 3,500,000 square feet. There is approximately 1,000,000 square feet being converted to residential.
LEASING ACTIVITY IS UP FROM LAST QUARTER AND PRE-COVID AVERAGES
Three out of the last four quarters, leasing activity has been above pre-COVID levels, which is 1,991,190 square feet. Before COVID, yearly leasing activity was 7,644,762 square feet. If you aggregate, the last 4 quarters’ leasing activity was 8,249,506 square feet which is higher than the average pre-COVID.
MIDTOWN SOUTH SUBLET MARKET
Midtown South has the lowest sublet availability rate out of all three markets, with 12.2%; the average pre-COVID level is 22.2%.
CLASS A OFFICE BUILDINGS SURPASSES CLASS B IN LEASING ACTIVITY
In Midtown South, this is the first period that Class A has the most amount of leasing activity with 44.6% representing 1 million square feet. Typically, in Midtown South, Class B dominates in leasing activity because there are more Class B buildings; however, this quarter it only accounted for 36.7%, representing 829,000 square feet. Leasing in Class A buildings can be attributed to law firms and Hedge funds moving from Midtown to Midtown South.
CHELSEA HAS THE HIGHEST LEASING ACTIVITY
For the last three quarters, Chelsea has dominated the leasing activity in Midtown South, this quarter with 34.6% representing 780,436 square feet, in second place, Hudson Square with 23.1% representing 522,376 square feet, and in third place, Gramercy Park with 21.5% representing 486,352 square feet.
AVERAGE LEASE SIZE IS GREATER THAN LAST QUARTER AVERAGE SIZE AND PRE-COVID DEALS
In Q1 2025, the average lease size of 7,882 square feet represents an increase compared to the pre-COVID average of 7,149 square feet.
5 LARGEST DEALS COMPLETED
Five out of five deals were direct, three out of five were renewal, four out of five deals were expansions, and three out of five deals were done in Class A buildings.
Goodwin Procter LLP is relocating from 620 Eight Avenue to 200 Fifth Avenue. This is the second major law firm to lease space in Midtown South.
CONCESSION PACKAGE IN Q1 2025 CONTINUES TO INCREASE IN MIDTOWN SOUTH
The average asking rents also increased to $70.9 in Q1 2025 from $66.8 in Q1 2024. Average concession packages increased by $8.3 from $66.8 in Q1 2024 to $70.9 in Q1 2025. Landlords are providing approximately on average $235.00 per square foot in total concessions. The typical tenant receives 9.8 months of free rent and a $177.9 cash contribution.
MIDTOWN SOUTH IS ON THE WAY TO RECOVERY
Midtown South Market will continue to recover if the economy avoids a recession. Financial services and law firms, which mostly are located in Midtown, might lease space in Midtown South because they cannot find the type of space they require (i.e. high floors with nice views). Rents will increase, and concession packages (i.e., free rent and work) will decrease.
