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- Q3 2024 OVERVIEW
NEW YORK CITY ECONOMY
The United States’ monthly civilian labor force for September 2024 was 168.6 million, an increase from 167.8 million in 2023. However, unemployment increased to 7.2 million (4.1% unemployment rate) in September 2024 from 6.2 million (3.7% unemployment rate) in September 2023 .
NYC’s monthly civilian labor force for September 2024 is 4.3 million, an increase from September 2023’s 4.2 million. However, unemployment increased to 227,900 (5.3% unemployment rate) in September 2024 from 218,400 (5.2% unemployment rate) in September 2023. Although employment is increasing in NYC, the new jobs are predominantly in lower-paying industries.
The U.S. 10-year treasure bill decreased to 3.74% in September 2024 from 4.61% in September 2023. As a result, company valuations will increase, helping real estate owners and companies refinance debt at a lower rate.
OVERALL MARKET
The availability rate in overall Manhattan for Q3 2024 was 17% and decreased from 18.20% in Q2 2024. The availability rate dropped in Midtown, Midtown South, and Downtown. However, New York City’s rental rate was $49.99 psf in Q3 2024, a decrease from Q2 2024 $50.20.
THE AVAILABILITY RATE COULD BE LOWER THAN 17%
The availability rate could be 1% to 3% lower than indicated. The statistics do not consider office buildings slated for residential use because the state has not passed the law giving landlords tax benefits for converting office buildings to residential use. There are also office buildings that cannot be leased because the lender has taken back the building and does not know whether the lender wants to own or sell it.
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 DOMINATED IN LEASING ACTIVITY
Leasing Activity in Midtown is still the highest out of all three markets, comprising 73% of the leasing activity in New York City.
Midtown represents 60% of the total market. Midtown South represented 19% of the market and accounted for 18% of leasing activity, and downtown, which represents 21% of the market (2% more than Midtown South), only accounted for 8% of leasing activity.
THE PIPELINE FOR NEW OFFICE BUILDINGS COMING ONLINE WILL HAVE NO MORE BUILDINGS ON JANUARY 2026
The rate of new building construction in NYC is significantly declining, with most projects anticipated to be finalized by the end of 2026. If a new office building were built today, it would take 4 years. In Q3 2021, 27 buildings were being built, representing 17,193,113 rsf, the 2nd highest in the last 5 years; however, in Q3 2024, only 14 buildings are being built, representing 5,975,000 rsf.
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.
OVERALL, CONCESSION PACKAGES INCREASED, LANDLORD CONTRIBUTION INCREASED; HOWEVER FREE RENT DECREASED
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.
SUMMARY
In Summary, the Manhattan market is starting to recover. Midtown’s performance is very close to, if not the same as 2019. Midtown South is beginning to stabilize. Downtown still has much to improve, and it is not even close to pre-pandemic times.
