Manhattan Office Market Still Sluggish

The evolution of Manhattan’s office market in recent years offers a good analogy to the sector’s nationwide woes. According to a new Commercial Property Executive special report on office debt maturity, roughly $615 billion in loans are expected to mature over the next five years in the sector.

Development stalled, with no new projects breaking ground in the borough year-to-date through April, while a single building was completed in this time frame. A total of 2.7 million square feet of office space were under construction in Manhattan.

Investment activity plummeted, as did the average price per square foot—to $351 as of April—but remained more than double the national average. Although landlords inked a few large leases, vacancy did not improve and clocked in at 17.6 percent.

Read on for a breakdown of the latest CommercialEdge data on Manhattan’s office market.

A few large projects sustain Manhattan’s office pipeline

In April, Manhattan had 2.7 million square feet of office space underway, which represented 0.6 percent of existing stock. Meanwhile, the national figure stood at 1.2 percent. Manhattan lagged most gateway markets in terms of space under construction as a percentage of stock, except for Chicago (0.3 percent).

Manhattan was on par with Los Angeles (0.6 percent), but behind Washington, D.C. (0.9 percent) and a few metros with above-average figures—Seattle (2.3 percent), San Francisco (3.2 percent) and Miami (4.0 percent).

Activity continued along national trend lines, as Manhattan recorded no new construction starts year-to-date through April. A single, 87,000-square-foot building, which encompasses 57,000 square feet of rentable office space, came online in the borough year-to-date through April. Activity slowed nearly to a halt, in line with most gateway markets. During the same period last year, a single building totaling 270,430 square feet was completed.

The largest project underway was 270 Park Ave. JPMorgan Chase topped out the property in November last year and expects to complete the 2.5 million-square-foot building in 2025. The 60-story Midtown East skyscraper will be fully powered by renewable energy and will be targeting LEED Platinum specification.

A few gateway markets stood out in terms of office space to came online in this period, including Boston (1.4 million square feet), San Francisco (1.4 million square feet), Chicago (875,000 square feet) and Los Angeles (303,175 square feet).

Debt maturity closing in, investors try to find value

Another significant marker of how office debt maturity is looming over the sector was in the number of refinancing and restructuring deals recorded during these first four months. Two massive such agreements closed in April. SL Green and Vornado secured a two-year extension for the $1.1 billion mortgage on 280 Park Ave. L&L Holding obtained $911 million in refinancing for its building at 425 Park Ave.

Manhattan investors traded a total of $290 million in conventional (non-portfolio) office sales year-to-date through April, a significant decline from the $860 million recorded in the same period last year. The average price per square foot reached $351 this April, which was more than double the $157 national figure.

Compared to other gateway markets, Manhattan remained on the pricier end of the ranking, despite average figures being in decline. Washington, D.C. was close behind ($345 per square foot), while a few metros exceeded the borough—Los Angeles ($359), San Diego ($397) and San Francisco ($407).

The value of office buildings continued to decrease at the beginning of this year. One of the starkest examples was the largest sale recorded year-to-date through April. Yellowstone Real Estate Investments acquired the 603,470-square-foot asset at 1740 Broadway for $185.9 million—the remaining value of the loan on the property. This building previously changed hands in 2014, for more than $600 million. EQ Office, the previous owner, defaulted in 2022 on the CMBS note backed by the asset.

Vacancy fails to improve in Manhattan’s office sector

Manhattan’s vacancy clocked in at 17.6 percent, up 80 basis points over a 12-month period ending in April. This was 120 basis points below the national figure and toward the higher end when compared to other gateway markets.

Although office absorption is expected to stay negative through 2025, according to a recent report by NAIOP, a number of significant leases closed in Manhattan’s office sector through April.

George Comfort & Sons signed a 338,085-square-foot lease with tenant American Eagle Outfitters Inc., at its 63 Madison Ave. property. The 20-year agreement comprised a 108,194-square-foot direct lease and a 162,291-square-foot sublease with CBS.

In March, Citizens Bank signed a 74,000-square-foot commitment at 1301 Avenue of the Stars. Owner Paramount Group acquired the 1.7 million-square-foot asset for nearly $1.5 billion, in 2008.

Boston (12.4 percent), Miami (13.0 percent), Washington, D.C. (16.8 percent) and Los Angeles (16.5 percent) all fared better than Manhattan in terms of vacancy. On the other side of the spectrum, San Diego (18.4 percent) and San Francisco (25.9 percent) recorded even larger vacancies.

Shared space providers expand

Manhattan’s shared space segment totaled nearly 9.5 million square feet—2.5 percent of total leasable office space—the largest out of all gateway markets.

WeWork was by far Manhattan’s biggest coworking provider, with 4.9 million square feet of allocated space across 41 locations. The second largest was Industrious, with 875,000 square feet of shared space. The company recently expanded its Manhattan footprint with a lease extension and expansion at 860 Broadway, to a new total of 27,630 square feet.

Other large flex office space providers included Regus, with 750,000 square feet across 23 locations, and Convene—with 10 locations encompassing 550,000 square feet. The firm also expanded its lease at 360 Madison Ave., to a total of 68,000 square feet.

Among other gateway markets, Miami exceeded Manhattan in terms of coworking as a percentage of total office space, with 3.7 percent (1.6 million square feet). Other metros with a significant share included Los Angeles (2.2 percent, 4.3 million square feet), San Francisco (2.0 percent, 1.3 million square feet), Seattle (2.0 percent, 1.3 million square feet) and Washington, D.C. (1.6 percent, 3.3 million square feet).