Office leasing in Manhattan has been shattering records over the last two years, but the swift spread of the novel coronavirus has stopped that rise in its tracks.
Following two strong years, leasing volume in the country's largest office market took a massive hit in the first quarter of the year, showing just how swiftly the global crisis has impacted the city’s real estate market.
A total of 4.5M SF of office space was leased in the first quarter of 2020, marking a nearly 47% decline from the 10-year quarterly average, per JLL figures released Monday. Colliers International's quarterly report pointed to a similar trend and noted the first three months of the year had the lowest leasing total in seven years.
Real estate industry players are trying to predict what the future may hold in uncharted territory. While many are looking back at the 2008 recession and the fallout of the Sept. 11 terrorist attack in the city for guidance, those events may not provide the most helpful context.
“[COVID-19] is hitting us at a time when we were on pretty good footing," CBRE Director of Research and Analysis for the Tri-State Region Nicole LaRusso said. "In 9/11 we were already in a recession … Similarly, rents were down by the time Lehman Bros. and Bear Stearns collapsed. Right now, we are taking extreme steps to minimize the health crisis, that has economic consequences — severe ones, as we are all finding out — but logic would tell you when the steps are reversed, the economy will be freed up.”
CBRE predicted the Manhattan office market could see a recovery similar to that seen in Asian economies following the 2002 SARS outbreak in a report released Monday. The declines there were sharp, but returned within one or two quarters, per CBRE. The report also noted that most real estate transactions are now paused, as tenants consider what space they will need in the future.
There have been few full cancellations of searches. Some tenants with lease expirations are now considering short-term options, per CBRE.
LaRusso acknowledged the unprecedented nature of the crisis makes it hard to predict just how the impact will be felt across the office market. While the job losses have reached extraordinary levels nationally — some 6.6 million people have filed for unemployment in the last two weeks — La Russo said many of those losses at this stage are in the hospitality and entertainment industries.