The doom and gloom predictions for New York City during the pandemic have surprisingly shifted to a booming real estate market. Manhattan’s vast 450 million square feet of office space is now more occupied than it was before COVID led to significant emptying of office floors.
Recent findings from three major brokerage firms show that demand has caused rents to rise rapidly, with CBRE reporting nearly a 4% increase in asking rents compared to last year.
However, as CBRE’s research director Michael Slattery pointed out, “asking rent averages don’t tell the full story.” He elaborated that the most sought-after spaces are getting leased quickly, which means that lower-quality offices are left behind, resulting in potentially greater rent increases for the top-tier spaces than the overall figures indicate.
Another brokerage, Colliers, reported that asking rents in Midtown climbed from $80.71 to $84.99 per square foot over the year.
In the top Class-A buildings, the increase was actually steeper. According to Savills, asking rents jumped from $75.44 to $94.91 per square foot, reflecting a 9.9% rise during the same timeframe.
While CBRE’s comprehensive market survey is due next week, recent third-quarter reports from Colliers and Savills revealed that availability rates have dropped to 13.1% and 13.4%, respectively—the lowest levels seen since early 2020.
Industries like finance, tech, and law are dominating this year’s new leases, making up 70% of them, as noted by the New York Business Journal. Interestingly, AI is starting to play a significant role in the market dynamics, accounting for about 20% of all leases signed. For instance, AI company Anthropic leased an entire building of 465,000 square feet at 330 Hudson St. Meanwhile, Dell has taken a substantial space at 1 PENN in Midtown.
Legal firms, too, are major players in the office leasing scene, with Simpson Thacher & Bartlett committing to nearly 1 million square feet at 570 Fifth Ave, which is still in construction.
But this leasing frenzy has its drawbacks. With vacancy rates in the top modern buildings hovering around just 12%, it’s becoming increasingly difficult for tenants looking to expand their teams. One well-known commercial broker said that some law firms aiming to add over 50,000 square feet are facing almost no available options.
“Honestly, we haven’t seen such a tight market for premium spaces since before 9/11,” the broker remarked, emphasizing how competitive the landscape has become.
In the third quarter, strong growth was evident across all Manhattan submarkets—from the World Trade Center to the yet-to-be-constructed 625 Madison Ave, where financial firm General Atlantic signed for 150,000 square feet with Related Companies.
Proskauer Rose also renewed and expanded its lease to 476,000 square feet at 11 Times Square.
Looking ahead, even though demand remains robust, no new office spaces will be available for several years due to projects like Vornado and Ken Griffin’s 350 Park Ave., BXP’s 343 Madison Ave., and SL Green’s 346 Madison Ave.
Interestingly, one broker noted that while no companies are fully relocating to New Jersey, some are contemplating it for support staff roles.
Impatience seems to be a common sentiment. JLL broker Kristen Morgan recently mentioned that tech and AI companies are not willing to wait for a new tower planned for Hudson Square, which wouldn’t be ready for 18 months. “They want butts in seats now,” she said.
