Prepared by Richard Plehn, Lisa Ann Pollakowski and Vanessa Ollarves
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SUMMARY OF THE COMMERCIAL OFFICE MIDTOWN SOUTH 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 Midtown South, rent decreased from $66.35 in Q2 2020 to $53.85 in Q2 2024. This is also a decrease from $55.08 in Q1 2024. Though rents seem to have remained pretty steady since Q2 2021, the availability rate has been steadily increasing. In Q2 2020, the availability rate was 10.4%; today, it is 20.1%. The availability rate dropped by three basis points since Q1 2024.
LEASING ACTIVITY IS SLOWLY RECOVERING
Leasing activity is starting to pick up in Midtown South because Venture capital firms are funding companies. In Q2 of 2019, 3.4 million rsf was leased; in Q1 of 2024 1.3 million rsf was leased; and in Q2 of 2024 1.5 million rsf was leased. While leasing activity is increasing, it hasn’t reached pre-pandemic levels.11
GRAMERCY PARK DOMINATES LEASING ACTIVITY
47% of all leasing in Midtown South was completed in the Gramercy Park Market area, even though Gramercy Park accounts for 26.6% of the total Midtown South Market.
SUBLET AVAILABILITY RATE HAS BEEN TRENDING DOWNWARD
The Midtown South market availability has been trending downward from 28.47 % in Q3 2020 to 14.93% in Q2 2024.
CLASS B DOMINATES THE LEASING ACTIVITY
In Midtown South 43.74% of all leasing activity was leased in Class B buildings and 35.44% in Class A buildings. This contrasts the market trend of greater leasing activity in Class A buildings: Midtown, Class A buildings comprised 80.23,% and in Downtown, Class A buildings comprised 65.77%of all leasing activity. This is partially due to lack of Class A buildings in Midtown South.
5 LARGEST DEALS COMPLETED
Three of the five largest deals in Midtown South were relocations, four were completed in Class A Buildings, and two were relocating from Midtown.
SUMMARY
The Midtown South Market is starting to show signs of recovery for the following reasons:
1.Venture capital companies are spending money on funding AI companies who want to be located in the Midtown South market, particularly in the Gramercy Park area.
2.1,000,000 square feet of buildings have been proposed to convert to residential. This will lower the inventory in Midtown South and decrease the availability rate.
Note: If you want to see more reports, please click below, you will find Manhattan, Midtown, Downtown and Overall market reports.
