The second quarter of 2020, one of the worst three-month periods the U.S. economy has ever seen, is officially over. Initial reports paint a picture of what this crisis has done to one of the world's largest office markets.
Just under 3.2M SF of leases were signed in Q2 in Manhattan, the lowest quarter of leasing the city has experienced since 2009, the nadir of the Great Financial Crisis, according to data from Colliers International. Leasing activity in the quarter was nearly 65% below Manhattan’s five-year rolling average.
Landlords have yet to drop their asking rents as many hold firm to the belief that the coronavirus pandemic could benefit them long-term, by forcing companies to take more space. Average asking rents decreased by 0.2% to hit $79.32 per SF.
Commercial real estate players noted the city is slowly shifting into functionality after being totally shut down since mid-March, meaning deal flow should grind back into action. Still, they acknowledge it will be a slow summer, wider threats to the traditional office remain — and there could be significant sublease space coming to the market soon.
Manhattan office availability reached 10.6% during the quarter, the highest it has been in more than five years. It was a far cry from the last few years, when the borough saw record-shattering volume and asking rents.
“It’s definitely going to be a challenge to the Manhattan office market, [but] I found it fascinating and interesting to see the continued tech firm commitment,” said Colliers International Senior Managing Director of Research Franklin Wallach, pointing to TikTok’s lease at Durst Organization’s One Five One in Times Square last month. "I was hopeful going into the second quarter … and there were signs of New York’s continued resilience.”
Still, when comparing the first half of the year to the first half of 2019, leasing velocity dropped by 50%, Colliers data show. In the last six months, the majority of which has been dominated by the pandemic and attempts to contain it, a total of 10M SF of office space was leased in Manhattan. By contrast, over 20M SF was leased in the borough during the first half of 2019.
Along with TikTok’s deal, other major leases of the quarter include the Securities and Exchange Commission’s 241K SF lease at 100 Pearl St. and Mitsubishi’s renewal for 120K SF at 655 Third Ave.
“There are signs of potential pent-up demand, but we are watching very carefully,” Wallach said. “There could be some lingering effects, like sublet supply or asking rents decreasing and the big question of what demand will be like.”
Overall, 21% of the available space right now is sublease space. After the dot-com bubble burst, he said sublease space made up more than 40% of availability.