Office Rental Market in Manhattan, Year End 2020
Manhattan Office Rental Market, Year End 2020. At the start of 2020 the New York office market showed no signs of slowing down. Leasing activity had recorded its highest two-year run of activity in this century. Developers were adding millions of square feet (SF) of new inventory and demand continued to outpace supply resulting in increasing rental rates.
Now looking back, the pandemics’ negative impact on the office market is apparent. Beginning in March 2020, the closure of essential businesses (retail, service, healthcare, financial, etc.) contributed to a migration of residents away from New York. Since then, the majority of companies continue to operate virtually and plan to do so for the foreseeable future. Office occupancies in New York are hovering around 20%, among the lowest in the nation. The work-from-home strategy has been both productive and cost-effective.
In 2020, long-term leasing transactions declined approximately 56% compared to 2019. The majority of new leases occurred in the tech sector and included large commitments by Facebook, Apple and TikTok who have the financial resources to weather the downturn. Much of the other leasing activity was renewals where companies obtained favorable terms to extend their leases for 3- 5 years.
There were more than 21 million-SF of office development projects under construction at the start of 2021. Although vacancy levels will be elevated in the coming years, developers are optimistic that future leasing activity will occur in the newest and highest quality buildings.
Increased vacancy and weak Tenant interest resulted in a 2.2% decline in rental rates in 2020 versus 2019. (The actual decline is likely greater.) In the current Tenant-friendly environment asking rents are being discounted and incentives like rent abatements are increasing. Many Landlords are offering more flexible terms with shorter duration leases.
Costar’s Analysis of the Manhattan Office Rental Market
CoStar is the world leader in commercial real estate information and has the most comprehensive database of real estate data throughout the US, Canada, UK, France, Germany and Spain.
Key Costar Manhattan Office Indicators:
- Vacancy Rate: 10.4%
- Market Rent: $57.65* (The rental income that a property would most probably command in the open market. This is the weighted average across all Manhattan office buildings.)
- Under Construction: 21,889,096 SF
- Total Rentable Building Area: 949,560,537 SF
The CRE Brokerage community is projecting Effective Rents* may be reduced 15%-20% from the peak recorded in 2019. This is consistent with the rent adjustments that occurred after 9/11. Notwithstanding, offices buildings that have a minimal amount of vacant units and a stable Tenant roster with long term lease commitments are less likely to offer significant discounts on their rent.
*Effective Rents: The average rent paid over the term by a tenant adjusted downward for concessions paid for by the landlord (such as free rent, moving expenses, or other allowances), and upward for costs that are the responsibility of the tenant (such as operating expense pass through).
Office occupiers that are flexible in regards to their lease term and space design will secure the deepest rental discount with a Sublease. Refer to our recent report Sublease Risk & Rewards in 2020.
Manhattan Office Rentals in the News
Manhattan office availability hits record high
Total leasing volume in 2020 declined by 56% compared to 2019 LINK
Few Office Tenants Touring Now-Affordable Trophy Space LINK
2021 Ushers In Hope for Rebound in the Real Estate Market LINK
About Cogent Realty Advisors, Inc.
Cogent Realty Advisors is an independent and licensed no fee Realtor with 20 years of experience representing businesses that lease NYC office space. We offer solutions for office Tenants seeking stability and value in uncertain times. For information phone Mitchell Waldman at (212) 509-4049.