Uncertainty of rising interest rates combined with work from home trend is reducing future office demand.

Manhattan office availability rate dropped in the third quarter to 16.4% Availability shrank to 16.7%. Tenants leased 9.2 million square feet, up 26% from the previous quarter and 28% from the same period last year.

Retail leasing has picked up dramatically, as landlords have lowered retail rents to levels tenants can afford and street traffic has picked up.

Commercial property sales are falling. In the third quarter, investors purchased $172.2 billion of commercial property, down 21% year-over-year. Pension funds are cooling on commercial real estate loans, as borrowing rates rise which is limiting new investments in the sector.

New York Market Overview


Tenants leased 9.2 million square feet in the quarter, up 26% from the previous quarter and 28% from the same period last year. Financial services, insurance and real estate tenants were the top-leasing industries during the quarter, accounting for 47% of square footage leased.

Year-to-date leasing volume stands at 24.2 million square feet, an approximately 50% climb from last year. Leasing volume this year is on track to outpace last year’s total by 29%.

Manhattan’s availability rate dropped to 16.4%, its lowest level since March 2021. The market’s 4.7% decline in availability from 17.2% in the second quarter was the biggest quarterly drop in availability in eight years.

Available space is up by about 65% since the start of the pandemic. Asking rent averages are down across Manhattan, a sign that office landlords are competing harder on price to secure tenants given work-from-home and economic headwinds.

After three straight quarterly increases, Manhattan’s asking rent average dropped by 2% to $74.07. It was the first time since December 2020 that the asking rent average dropped in Midtown, Midtown South and Downtown.

Manhattan’s asking rent average remains down, close to 7% since the onset of the pandemic.

Midtown’s availability rate fell by 1.8 percentage points, or 10.5%, year-over-year to 15.3%, the neighborhood’s lowest vacancy rate since December 2020. Midtown’s asking rent average dropped marginally to its lowest level in seven years at $78.61.

Tenants signed deals for 4.4 million square feet in Midtown, a 46% year-over-year increase. The neighborhood’s year-to-date leasing volume of 11.6 million square feet is up 42% from last year. Overall, supply is up by about one-third since the beginning of the pandemic.

Midtown South’s availability rate dropped to 15.6%, the neighborhood’s lowest vacancy rate since March 2021. Midtown South’s nearly 1-point decrease in availability from last quarter’s 16.5% was its sharpest quarterly drop in eight years. The market’s average asking rent fell for the first time in six quarters, dropping to $79.77 from $81.64.

Roughly 3.46 million square feet was leased in Midtown South, marking its strongest quarter since the end of 2019. Leasing volume jumped by almost one-third from 2.6 million square feet last year. The neighborhood’s year-to-date leasing volume of 9.51 million is up 86% from last year. Overall supply, however, is up 97% from the start of the pandemic.

It was a dimmer picture for office landlords. Downtown, where for the 10th consecutive quarter, the availability rate increased, rising to 20.2%. The neighborhood’s asking rent average fell for the third consecutive quarter to $58.68. Downtown’s asking rent average is down almost 11% since the onset of the pandemic.

Downtown’s leasing activity more than doubled from the previous quarter, as tenants scooped up 1.31 million square feet. However, leasing volume declined year-over-year by 17.2% from 1.58 million square feet. About 21.67 million square feet remains available, which is up 10% from last year and 98% since early 2020.

The return-to-office outlook in Manhattan is mixed. A post-Labor Day surge saw attendance at the city’s office buildings reach pre-pandemic levels in mid-September. However, the surge appears to have cooled. After reaching a pandemic-high of 46.6% last month, the city’s occupancy rate dropped to 43.5% for the last week in September.

KPMG signed a 20-year deal for 456,000 square feet at 2 Manhattan West near Hudson Yards. The deal will consolidate the financial giant’s existing 800,000 square feet of space across 345 Park Avenue, 560 Lexington Avenue and 1350 Sixth Avenue.

Franklin Templeton rented 347,000 square feet at One Madison Avenue.

D.E. Shaw rents 277,000 square feet at Two Manhattan West.

MGM Studios inked a lease for 50,500-square-foot lease at 260 Madison Avenue.

Meta terminated its lease at 225 Park Avenue South, where it occupied more than 200,000 square feet.

Amazon reportedly walked away from an expansion it was working on at 5 Manhattan West.

Office attendance in NYC office buildings reach pre-pandemic levels in mid-September. In. October, desk visitation in the city rose to 47.8%.

The Federal Reserve’s inflation battle is threatening to send office values plummeting, as borrowing becomes more difficult for building owners. The owners of aging office towers are facing the most dire value destruction. Some buildings in New York have fallen by a quarter and previously low-level defaults are rising.

Offices have struggled with lower demand and growing vacancies since the onset of the pandemic. In the third quarter, office leasing in major cities was down 40% from pre-pandemic levels.

The office market was carrying too much office space and too little demand before the pandemic, but the imbalance was obscured by low interest rates that increased apparent building values even as rents declined. Investors also favored offices to securities and Treasury bonds, which were providing comparatively low yields.

Dealmakers traded $7.86 billion worth of commercial properties in the third quarter, a 30% decline from the second quarter.

Industrial properties saw the largest declines, both quarter-to-quarter and year-over-year. Sales of industrial assets, which include warehouses and manufacturing sites, plummeted 72%, from $1.22 billion in the second quarter to just $335.5 million in the third quarter. That’s down from $390.6 million in the third quarter last year.

Institutional investors are paying a premium for well-located, Class A, Manhattan office buildings with a high tenancy and attractive amenities, while Class B and C buildings in less desirable locations aren’t generating the same level of interest.


A|X Armani Exchange is subleasing at 536 Broadway, taking nearly 10,000 square feet from Ralph Lauren, which shuttered the Club Monaco. There were eight years left on its lease.

Retail vacancy dropped to 6.1% in the second quarter. The rate was the lowest the country has seen, not only since the pandemic, but in the past 15 years.

A key factor in the improving metrics in the retail market is the downward adjustment in new construction. Buildings started dropping a decade ago, as demand for malls fell and prominent retailers entered bankruptcy. As a result, the oversupply in the market eased.

Companies are seeking opportunities to expand their physical retail presences as shoppers return. Ralph Lauren and Cartier are among the companies looking to open more locations in the coming years.

Retail real estate is not out of the woods. Inflation and recessionary fears could still have a negative impact on how much shopping consumers are doing, and in turn, how successful retail outlets are. While some companies are expanding, others are contracting in a significant way.

The Tour de France Group managing partner signed a 9,800-square-foot lease at 101 West 57th Street.

Bed Bath & Beyond closed hundreds of stores and laid off a sizable portion of its workforce.

Smoke shops have become some of retail’s biggest space takers after adding cannabis. Some worry about unpleasant odor or customers; others fear legal issues.

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