New York City office leasing surges; still below pre-pandemic levels

Colliers International

03/10/2022 22:57

By Herbert Lash
       NEW YORK, Oct 3 (Reuters) - New York City's office
market rebounded in the third quarter from a year earlier,
though leasing remained below levels seen before the rise of
remote work during the COVID-19 pandemic, and higher interest
rates and a strong dollar dampened new investment in the sector.
    Office leasing volume rose 27.6% to 9.23 million square
feet, the strongest quarterly gain since the end of 2019 – a
gangbuster year for leasing in New York, according to Colliers
International Group Inc  CIGI.TO . 
    So far this year leasing volume has totaled 24.17 million
square feet, or nearly 50% more than the same period in 2021 and
less than 4% from passing last year's total. Volume remained
below the quarterly average of about 9.1 million square feet in
the five years through 2019. 
    "We're still hearing of large pending deals," said Frank
Wallach, executive managing director of New York research at
Colliers, adding that leases in the works for months typically
close by year's end.
    "Not all but a good number of them come to a close as we
approach the post-Thanksgiving, pre-New Year's Eve rush because
there's usually that desire to get everything wrapped up and
taken care of," Wallach said.    
    In another positive sign, the availability rate for office
space slid 0.8 percentage points to 16.4% in the third quarter,
the sharpest quarterly decrease in eight years, Colliers said.
    The drop drove availability to its tightest since March
2021, but still far above its 10.2% level in the first quarter
of 2020, at the start of the pandemic, Wallach said.
    The leasing surge was driven by several large leases in the
Hudson Yards district overlooking the Hudson River, including
the largest so far this year, a 456,000 square foot deal by KPMG
in August.
    The accounting firm's lease at 2 Manhattan West, a 58-story,
2 million square foot tower due to open next year, is indicative
of a flight to quality during the pandemic. 
    But the deal also marks a more than 40% drop in KPMG's New
York office footprint as it consolidates several office sites
into one, an efficiency driver, and embraces the hybrid office,
a model that can allow companies to reduce their space needs.
    The latest data on potential future leases for New York
office space from View The Space Inc, a multidimensional
commercial real estate platform, last week showed a 22.8% drop
in August for new leasing demand in New York.
    VTS expects leasing activity to be "pretty good" for coming
months, but if more new demand is not seen by year's end,
leasing can be expected to decelerate in 2023, VTS said.
    "The next quarter or two will be really telling because
we'll get to see people who've been in the market, do they end
up transacting or not?" said Nick Romito, VTS chief executive.
    The sale of office buildings fell 71% in the third quarter
to $1.2 billion, an amount that often accounted for single asset
sale during red-hot 2015 and 2016. Rising interest rates was the
most significant factor for slower sales, Colliers said.
 (Reporting by Herbert Lash; Editing by David Gregorio)
 ((herb.lash@thomsonreuters.com; 1-646-223-6019; Reuters
Messaging: herb.lash.reuters.com@reuters.net))