M
anhattan's office market has made a stunning recovery from the pandemic-induced slump, leaving tenants scrambling for space. The city's Midtown area is particularly tight, with available floors being snapped up quickly, even before they're listed in databases like Costar.
Companies such as Temasek, a Singapore-based sovereign wealth fund, are struggling to find room to expand at iconic locations like the Seagram Building on Park Avenue. Sources close to the deal say that two floors were recently taken by Atarios Capital and CBRE Investors is close to securing the remaining four.
Law firms like Baker Hostetler, which occupies 90,000 square feet at 45 Rockefeller Plaza, are also searching for more space but facing similar challenges. Bryant Park Corporation president Dan Biederman notes that almost all landlords in the area are telling prospective tenants they have no available space left.
Legendary dealmaker Mary Ann Tighe warns that by 2027, large tenants will face significant problems finding suitable office space. She points out that only 21% of the 2.4 million square feet of new space set to be completed by 2026 remains unleased.
Residential conversions have not contributed to the commercial market's tightness, as these older buildings were repurposed due to their unsuitability for modern offices. Cushman & Wakefield broker Mark Weiss attributes the demand surge to the demise of work-from-home arrangements and companies' realization that they need to bring employees together in offices.
Weiss notes that the trend has unfolded industry by industry, with elite financial firms leading the way, followed by commercial banks, law firms, and technology companies. Creative industries are now starting to return to the office as well.
SL Green's CEO Marc Holliday predicts that vacancies will continue to decline, potentially reaching 12% in Midtown and below 7% on Park Avenue. He believes hybrid work is already a given, driving demand for office space. With no new inventory on the horizon, rents are expected to rise significantly.
Data from JLL confirms the market's strength, with November's leasing total exceeding 2.7 million square feet, bringing the year's total to 25.3 million square feet by November 30. The Manhattan availability rate remains relatively stable at around 18.9%, but this masks the growing disparity between high-end and low-end markets.
Availability rates are extremely low in prime areas like Park Avenue, Sixth Avenue, and Hudson Yards, while older stock in locations like the Financial District and Garment District struggles with vacancy rates above 20%. Demand for office space has surged to 12.5 million square feet, up 50% from the prior three months, according to VTS.
Tighe attributes the scarcity of new product to the fact that many old buildings were not demolished to make way for new ones, resulting in a lack of large-footprint sites required by major tenants.
