Market Update: Is NYC’s Recovery Underway?

Since the effects of the global health crisis started to settle, all eyes have been on New York City’s office market and its road to recovery. However, numbers have been shy to point towards a definite recovery so far. Based on CommercialEdge data, we have compiled the freshest numbers to give you the current fundamentals of the largest office market in the country.

Manhattan’s under-construction office stock in September reached 25.1 million square feet, with 27 office properties in the making—representing 5.3 percent of total stock. The nation’s development pipeline hit 7.8 million square feet that month, corresponding to 2.5 percent of total stock.

The borough’s current pipeline is still sustained by large-scale projects that started to go vertical before the pandemic hit. Three of the top 5 largest office developments currently in the making have deliveries planned by the end of 2022, including Tishman Speyer’s 2.8 million-square-foot The Spiral—currently the biggest office property under construction in the metro.

Manhattan is still the gateway market with the largest under-construction pipeline, followed by Boston (16.1 million square feet) and Seattle (12.4 million square feet). Three years ago, some of these now best-performing cities have not made it to the top, but the life science sector’s ongoing boom has propelled them into the lead.

New office development lags

Construction starts during the first nine months of the year reached merely 715,124 square feet in Manhattan, and included three properties. By comparison, in the same period in 2021, five buildings totaling 2.2 million square feet commenced construction.

In the first quarter of the year, excavation work begun on 520 Fifth Ave., the mixed-use project to break ground in 2022 in the metro. Rabina Properties is the developer behind the 450,000-square-foot, Kohn Pedersen Fox-designed tower. The property will offer luxury residences, boutique offices and retail.

425 Park Avenue. Image courtesy of Alan Schindler

The largest building that came online year-to-date through September was 425 Park Ave., with developers L&L Holding, Tokyu Land Corp. and BentallGreenOak receiving a temporary certificate of occupancy in January 2021. The Norman Foster-designed landmark rises 47 stories in the Plaza District and offers roughly 670,000 square feet of leasable office space. The tower represents the first full-building structure along Park Avenue to rise in half a century.

The second largest project that was completed so far this year was Klövern and GDS Development Management’s 1245 Broadway in NoMad. Designed by Skidmore, Owings & Merrill, the 23-story property features 190,000 square feet of leasable space. In October 2021, film and television studio A24 Films signed a 41,000-square-foot lease at the property.

Manhattan office vacancy widens YOY, but there’s a silver lining

The metro’s office vacancy hit 13.8 percent in September, outperforming the national average of 14.5 percent that month. Manhattan’s office vacancy registered a drop in the second and third quarters compared to the first three month of 2022, with lease signings accelerating in 2022—but the borough’s occupancy has still a long way to go.

Los Angeles (12.3 percent), Miami (10.2 percent) and Boston (7.5 percent) had lower vacancies than Manhattan, while the other peer markets registered higher rates: Seattle (16.4 percent), San Francisco (17.6 percent) and Chicago (18.1 percent).

Here are some of the biggest Manhattan leases of the year:

• Franklin Templeton’s nearly 350,000-square-foot commitment to SL Green Realty Corp.’s One Madison Avenue, along with IBM’s 328,000-square-foot, 16-year lease at the same property back in March
• KPMG will relocate its headquarters to Brookfield Properties’ Two Manhattan West
• HSBC signed a 20-year, 265,000-square-foot lease at The Spiral
• Macquarie Group committed to 221,764 square feet at Brookfield Properties’ 660 Fifth Ave. in the Plaza District;

Second-quarter deal volume exceeded $1 billion

In the first nine months of 2021, Manhattan’s sales volume reached $2.4 billion, representing the trade of 20 properties. In the same period this year, transactions added up to $2.0 billion, marking a slight drop in deal volume on year-over-year basis. The first and third quarters were slower, with deal volumes hitting $462 and $462 million, respectively, while the second-quarter volume totaled $1.1 billion.

450 Park Ave. Image via Google Street View

Across gateway cities year-to-date through September, Washington, D.C (3.2 billion), Los Angeles ($2.9 billion) and Boston ($2.5 billion) exceeded Manhattan’s total transaction volume, with San Francisco ($1.6 billion) and Miami ($1.2 billion) on the other side of the spectrum.

Year-to-date through September, the borough’s average sale price reached $873.8 per square foot. By comparison, at the same point last year, prices averaged at $1,192 per square foot.

The largest sale was the trade of 450 Park Ave. that closed in late June. SL Green picked up the 337,000-square-foot asset in a joint venture with two unidentified institutional investors from South Korea and Israel, at roughly $1,350 per square foot. The building traded at a price that exceeding by far the borough’s average during the second quarter of 2022, that reached $843.6 per square foot.

The sale of 475 Fifth Ave. in Murray Hill was the second biggest deal of the current year so far. RFR Realty acquired the 275,738-square-foot tower from a partnership between Nuveen Real Estate and Norges Bank Investment Management. The buyer picked up the LEED Silver-certified asset in a $291 million deal.

The return of the coworking trend

The flex office scene has experienced a rebirth since hybrid working scenarios took hold of people’s lives, promising a more balanced work-life dynamic. A recent JLL report predicts that 30 percent of the current office space will become flexible in the next decade.

According to CommercialEdge data, across the nation’s total leasable office space, coworking represented 1.7 percent of total stock as of September. This figure reached 3.1 percent in Manhattan and 4.6 percent in Brooklyn—one of the highest ratios in the country. Across gateway cities, in Los Angeles’ coworking space made up 2.6 percent of total office stock, while Miami’s flex office supply occupies a larger portion, 3.4 percent of inventory.

In August, NYC-based coworking venture The Malin announced that it would be opening two new flex office spaces in Brooklyn and Manhattan. The company entered the market in 2021 with its Soho location.