PRESS RELEASE: Ongoing Impacts of COVID-19 Drive Leasing Velocity to Record Low Levels by End of Second Quarter

Record low volume overall as COVID-19 impacts are felt; vacancy rate up as sublet and co-working space starts to hit the market

New York City – Total office leasing volume in Manhattan in the second quarter fell to a level not seen since the second quarter of 2009, according to Avison Young’s Second Quarter 2020 New York City Office Leasing Report.

Manhattan office leasing volume declined 68.0 percent year-over-year in the second quarter to 3.3 million square feet compared to 10.3 million square feet during the same period a year ago. Subleases and renewals together accounted for one-third of the total number of quarterly lease signings. Year-to-date through mid-year, total volume of 10.6 million square feet fell 44.0 percent from 18.8 million square feet a year ago.  

Significant second quarter leases included: TikTok (ByteDance), 232,138 SF new lease at 151 West 42^nd Street; Allen & Overy, 143,331 SF renewal at 1221 Avenue of the Americas; Mitsubishi Corporation, 120,087 SF renewal at 655 Third Avenue; SEC, 241,171 SF new lease at 100 Pearl Street; and AIG, 200,000 SF new lease at 28 Liberty Street.

The vacancy rate in Manhattan rose 110 basis points year-over-year in the second quarter to 10.9 percent, while overall asking rents increased 1.0 percent to $81.85.

“The modest rise in average asking rents in the second quarter can be attributed to tenants preferring pre-built and less expensive space after the declaration of the COVID-19 pandemic in March, which has left higher-priced inventory on the market,” said Marisha Clinton, Senior Director of Research, Tri-State. “We also anticipate that a rise in the supply of space, both discounted sublet and co-working give-backs, and a contraction in demand will result in a decrease in average asking rents and further increases in vacancy rates throughout the next quarter and possibly beyond.”                                                     

Over 3.0 MSF of sublease space tracked since March 1st through the end of the second quarter has been identified as either officially listed or as “shadow space” hitting the Manhattan office market. By industry, the greatest amount of this sublease space has been put on the market by technology/advertising/media/information (TAMI) tenants totaling 1.0 MSF or approximately one-third of the available space.

Clinton continued, “Given the fast growth of TAMI occupancy in Manhattan, as well as announcements by some of the larger tech companies to work from home longer term, we can expect TAMI companies to be the biggest contributors of additional sublease space overall on the market.”

In prior downturns, Clinton noted, discounted sublease vacant space has put downward pressure on direct average asking rents. As an example, during the Great Recession, the amount of discounted overall sublease vacant space on the market grew from 6.3 MSF in 2007 to 10.0 MSF in 2009 and overall led to a 24.0 percent decline in direct average asking rents across Manhattan markets.

The Manhattan market is already starting to see price per square foot reductions for sublease space in some of its iconic assets and can expect to see more rent declines at the top of the market. 

In addition to the sublet space, there are new product deliveries that are now getting back on track after being delayed by nearly two months due to COVID-19 construction delays. With the resumption of non-essential construction activities in June, 5.7 MSF of new product is expected to be delivered through the end of 2021 and another 6.3 MSF in 2022, for a total of 12.0 MSF of new product deliveries over the next two years.

Further adding to supply, some co-working providers are planning substantial space givebacks. The top flexible office and co-working providers in Manhattan lease approximately 12.0 MSF or 2.0 to 3.0 percent of total office inventory.

Given an estimated total of 28 MSF of new supply that could be added to the Manhattan office market over the next two years, average asking rents are expected to decline while concessions are likely to increase.

To read the full report, please click here.