Prepared by Richard Plehn, Lisa Ann Pollakowski and Vanessa Ollarves
SUMMARY OF THE COMMERCIAL OFFICE MARKET- 1Q, 2024
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NEW YORK CITY ECONOMY
The New York City office market is on the path to recovery, with positive trends in key economic indicators.The Monthly Civilian Labor Force increased from March 2023 to March 2024 in the United States by 1,700,000 and in New York City by 24,002. Total employees working expanded in the United States by 503,080, and in New York City by 51,907. It is important to note that unemployment in New York City decreased from 5.2 % to 4.9%, which is attributed to the increase in employees working in New York City.
Initially, it was anticipated by Wall Street that the Federal Fund Rate would experience a reduction. Nevertheless, the Federal Reserve Bank has communicated its decision against a reduction in the federal fund rate. As a result, it could impact job growth in the United States, NYS, and NYC.
OVERALL MARKET
In the first quarter, New York City’s rental rates declined to $51.74 per square foot (PSF) from $53.99 PSF in the same period the prior year. The availability rate has remained steady at 18% for the past three years.
Class A buildings accounted for 74% and 71%, respectively, of leasing activity in downtown and midtown Manhattan. In contrast, 62% of leasing activity in Midtown South has been completed in Class B buildings.
LEASING ACTIVITY BY MARKET
75% of all leasing transactions were completed in Midtown; 18% in Midtown South; and 7% in Downtown.
AVAILABILITY TO VACANCY RATIO
The availability rate has remained steady at 18% for the past three years. However, in the first quarter, the New York City vacancy rate increased to 15.6% from 15% in the fourth quarter of 2023. Although tenants today generally have more leasing options, the availability of trophy buildings with superior views remains relatively limited.
OFFICE BUILDINGS UNDER CONSTRUCTION
In the third quarter of 2021, 27 office buildings were being built, which is approximately 17,000,000 rentable square feet (RSF). In the first quarter of 2024, 16 office buildings were under construction, representing approximately 6,227,990 RSF.
THE SUBLET MARKET IS DECLINING
The sublet market was 23.5% in Q1 of 2023 declining to 20% in Q1 of 2024. It is now back to pre-pandemic levels, close to Q1 and Q2 of 2019, with 19.1%.
10 LARGEST DEALS COMPLETED BY RSF IN MANHATTAN- Q1, 2024
In the first quarter of 2024, eight out of the ten largest deals were completed in Midtown. The fashion industry had three of these largest deals. Since the pandemic, financial services have been one of the leading industries in leasing activity, representing three out of the top 10 deals consummated during this period.
SUMMARY
The Plaza District, located within Midtown North in New York City, is experiencing rising rents and reduced concession packages in prestigious office buildings due to the following factors: Over the last three years, tenants have preferred to move into premium office buildings instead of settling for less-impressive, second tier alternatives. The availability of premium units with abundant natural light and panoramic views is quite limited. Furthermore, despite the higher demand for top-tier spaces, the construction of new office buildings to meet underlying demand totaled only a relatively modest 6 million square at the end of 1Q, 2024.
