During the COVID-19 pandemic, tenants began to shed space that they didn’t need in Manhattan. That led to a dramatic increase of sublease space on the market.
Overall, 19.3 million square feet of gross sublease space was put on the Manhattan office market since the beginning of 2020. As of June 1, sublease space accounts for 26% of all available space.
While the amount of sublease space has risen, it is still below the amount put on the market during The Great Financial Crisis. In 2008 and 2009, 23.7 million square feet of gross space, which accounted for 31% of all available space, was added to the market.
“A flood of sublease space tends to be a drag on the market, causing the availability rate to rise and dragging down pricing, since sublessors often price their space at a discount to landlords’ direct space offerings,” according to CBRE. “For this reason, trends in the sublease market are considered a bellwether for the overall market performance and changes in the momentum of the sublease market are closely monitored.”
However, CBRE says things seem to be changing in Manhattan. As sublease additions begin to slow, some tenants are pulling that space off the market, with workers returning and hiring resuming.
In 2021, 2.0 million square feet of sublease space has been withdrawn from the market. More than half of that occurred as vaccination accelerated in April and May. Sixty percent of all sublease spaces 25,000 square feet or larger withdrawn from the market were recaptured by the original tenant.
That same thing happened in 2009 and 2010 when 57% of the gross sublease space added during the recession, totaling 13.6 million square feet, was eventually pulled from the market.
“There is still a long way to go to absorb the large volume of sublease space currently on the market, but with the volume of new additions slowing down, the pace of space withdrawals picking up, and the economy adding back office-using jobs at a steady clip – there is more cause for optimism that the office market is nearing the beginning of the end of its downturn,” according to CBRE.