Office leasing demand in Manhattan submarkets such as SOHO/NOHO and Meatpacking/Hudson Square and Midtown South are leading KPG Funds to predict an imminent surge in NYC leasing activity for the next couple of quarters.
“These micro submarkets continue to massively outperform other submarkets and are on pace to have more demand than supply,” Greg Kraut, CEO of KPG Funds, said in a release.
According to KPG’s Q3 RSSI Index results, during the third quarter, every Manhattan submarket had more tenant demand than in the first quarter. Most of the new tenant demand was in Midtown South to the tune of 6.5 million square feet, up a staggering 64 percent from Q1 this year, according to the analysis.
“Office demand figures serve as an indicator of future leasing activity,” Kraut said.
Avison Young’s Third Quarter Manhattan Property Sales Report showed that the market saw a slight uptick in activity in the third quarter with 55 transactions for over $1.1 billion, eclipsing the previous quarter’s 51 transactions. It marked the highest transaction count for any quarter since the beginning of the pandemic.
James Nelson, Principal and Head of Tri-State Investment Sales at Avison Young, tells GlobeSt that he agrees with KPG’s outlook.
“We are seeing a strong recovery in the investment sales market,” Nelson said. “We are anticipating a huge bounce for the fourth quarter due to large sales that are currently in contract. Market conditions have not been this good in years to transact.”
Surging Demand in Midtown South
Midtown South actual leasing activity totaled 1.7 million square feet this quarter. This marked the first time that velocity eclipsed 1 million square feet in consecutive quarters since Q4 2019 and Q1 2020.
In Q3 2021, leasing activity spiked to 1.8m sf, the highest quarterly total in more than two years.
Additionally, this quarter, there are over 1 million square feet of new tenants that now want to be in SOHO/NOHO and Meatpacking/Hudson Square.
Vibrant Work-Live-Play Locations Have Great Appeal
Tenants are now using office space as a lure to recruit and retain talent. Vibrant work-live-play locations appeal to high growth, emerging companies seeking to draw on NYC's deep and skilled talent pool. Highly amenitized and designer office product “is now king,” which is a contrast to the surplus of commodity product that remains on the market, KPG said in a release.
On the other hand, demand for office space declined in Downtown East as well as in Midtown neighborhoods including Murray Hill, Park Avenue, and the Plaza District. In Murray Hill, for example, prospective tenants collectively looked for 230,000 square feet of office space in the third quarter, down 29 percent from Q1.