Q3 2022 Office Space Report: Manhattan, NY
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Manhattan, NY’s office space market experienced three consecutive quarters of rising average rents, only to be halted by economic uncertainty and rising interest rates combatting inflation in Q3 2022: Average asking rents for office space in Manhattan fell by about 2.0% to about $74.00 per square foot, largely fueled by above-average priced space being occupied and taken off the market.
Meanwhile, leasing volume in Manhattan increased quarter-over-quarter by about 25%. Net office absorption was still positive in Q3 2022, but pricing took a hit.
Year-over-year leasing volume in Manhattan was up by about 27% compared to Q3 2021.
General Area Overview & Demographics
Manhattan is one of the five boroughs comprising New York City and currently boasts a population of about 1.63 million people. Manhattan’s population density is tight, with about 70,000 people per square mile living in the borough.
Manhattan also contains one of the lowest percentages of owner-occupied housing in the country at just 20%, the second-lowest in the country. Despite its tight population density and low owner-occupied housing, it’s one of the wealthiest regions of the United States, with a per capita income of over $100,000.
However, the cost of living in Manhattan is currently the highest in the nation. Average annual household income in Manhattan currently sits at about $140,000.
Summary of Manhattan Office Space Performance in Q3 2022
In Q2 2022, office space vacancies sat at about 8%, about 50 basis points below Q1 2022’s vacancy rate. In Q3 2022, vacancies continued to fall, with the office space availability rate at about 16%. Gaps between starting rents and asking rents shrank in Q3 2022 Manhattan by about 10%.
The financial services, insurance, and real estate sectors led Manhattan’s Q3 2022 leasing activity, cumulatively reaching nearly 50% of activity. The technology, advertising, media, and information services sectors had about 20% of leasing activity, and the professional services sector came in third, with about 18% of leasing activity.
Average asking rent per square foot of office space in Manhattan fell quarterly to about $74 in Q3 2022. Three major submarkets of Manhattan (Midtown, Midtown South, and Downtown) all reported decreases in average asking rents in Q3 2022. The drops were primarily recorded for Class A office space.
Office Space Submarket Activity in Manhattan
Greenwich Village, however, recorded a large quarterly increase in average asking rents at about 8%. Soho reported one of the sharpest decreases in average asking rents at 4.1%.
The Hudson Yards, Hudson Square, U.N. Plaza, and Murray Hill submarkets all recorded sharp yearly increases in average asking rents for office space, with the average rent per square foot of office space coming to about $90 between all four.
What are office space rents like in Manhattan?
As of Q3 2022, the average asking rent per square foot of office space in Manhattan sat at about $74. The average rent per square foot of office space in the Midtown submarket was $78, while average rents in Midtown South and Downtown sat at about $80 and $60, respectively.
Notable Leasing Activity in Manhattan in Q3 2022
The finance, insurance, and real estate sectors dominated leasing activity in the Q3 2022 Manhattan office space market, with nearly 50% activity. Manhattan’s average tenant improvement allowances increased yearly by about 3%.
Office space net absorption in Manhattan was positive in Q3 2022 at about 4.1 million square feet. However, office space net absorption since March 2020 is still negative.
Some notable lease transactions in Manhattan during Q3 2022 include:
- KPMG’s leasing of about 455,000 square feet at 2 Manhattan West;
- Franklin Templeton’s leasing of about 345,000 square feet at 1 Madison Avenue;
- Datadog’s leasing of about 330,000 square feet at 620 Eighth Avenue; and
- Indeed’s leasing of about 245,000 square feet at 1120 Avenue of the Americas.
These are a select few of many notable leasing transactions that took place in Manhattan’s office space market in Q3 2022.
Industry-Specific Office Space Leasing Activity
The FIRE (financial, insurance, and real estate) and TAMI (technology, advertising, media, and information services) sectors dominated Manhattan’s Q3 2022 leasing activity.
Some other notable leasing activities by industry include:
- The consumer goods/retail industry: 5% of total leasing activity;
- The health services industry: 2% of total leasing activity;
- The entertainment & recreation industry: 1% of total leasing activity; and
- The public sector: 5% of total leasing activity.
Other industries in Manhattan took up about 1% of leasing activity cumulatively during Q3 2022.
2023 Market Forecast & Takeaways for Manhattan’s Office Space Market
Older, vacant Class B and C office buildings still riddle New York City, abandoned since the pandemic. Efforts to convert these older buildings into other, more practical purposes are ongoing, placing emphasis on Class A space for employers throughout the city and its five boroughs.
Fears of an economic recession may have mildly tapered due to falling CPI increases and healthy job growth. Nonetheless, caution among employers to continue leasing office space remains. The office space sector in Northeast and coastal markets may flounder in 2023 as more people relocate to more affordable Sunbelt and Midwest markets.
Much remains to be seen for the Federal Reserve’s fight against inflation. Although the Fed signals that interest rate increases will be milder in 2023, the ramifications of their intense 2022 increases will start to take effect as we progress through Q1 and into Q2 of 2023.
Methodology
All figures presented in this article are based on MyEListing.com’s commercial real estate listing data in corroboration with other freely available data and information covering the commercial real estate industry.
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