SUMMARY – COMMERCIAL OFFICE MARKET- 4Q 2023
NYC Economy
New York City’s economy continues to rebound as pandemic-driven weakness wanes and employees gradually return to their offices, albeit at levels still markedly below pandemic averages.
Annual U.S. Unemployment Rate: Increased slightly to 3.7% from 3.6%, YOY
New York City’s Unemployment Rate: Increased slightly to 5.3% from 5.2% YOY
The workforce in New York City grew by approximately 1% (43k), rising to a total headcount of 4.15 million in November 2023
Daily Office Occupancy Rates: Rose 5.6 % YOY, reaching 48.9% by the end of November 2023, according to Kastle Systems office tracking data
NYC Office Market
New York City office leasing rates declined 6% to $51.47 PSF from $54.69 PSF.
The availability rate declined slightly to 17.4 % from 17.8% YOY. However, Midtown South’s quarterly availability rate rose to 18.7% from 17.5%, partly due to increased tech companies subleasing space or shuttering operations.
Availability vs. Vacancy Rates
Availability: Future office space – is trending lower, although Current Vacancy is higher.
New York City Vacancy Rate increased to 15.2% from 13.7% Year Over Year. The vacancy Rate is its highest since 2019.
By year-end, NYC had approximately 88.4 million rsf of vacant office space, providing tenants with a wider range of leasing options than a year ago
Leasing Activity
In the 4th quarter, leasing activity was 8,989,625 rsf, which was the highest for the year.
Each Quarter, leasing activity increased. However, leasing activity was less than in 2021 and 2022.
68% of leasing activity was completed in Midtown.
Flight to Quality
Office tenants have taken advantage of favorable lease pricing to move to higher-class office buildings since the start of the pandemic in 2020.
81% of leasing activity in Midtown and 41% in Downtown were completed in Class A buildings.
By contrast, 75% of leasing activity in Midtown South has been completed in Class B buildings, reflecting the scarcity of Class A buildings in Midtown South.
10 Largest Deals Completed
Lease Renewals: 8 out of the 10 largest deals for Q4 2023
7 out of the 10 largest deals were in Midtown
Summary
Landlords with large blocks of space often must increase concession packages, such as free rent, work, and cash contributions to attract and retain tenants.
Landlords in Class B office buildings in Downtown and Midtown will need to upgrade their buildings to retain tenants and attract tenants.
