Full-year 2024 office leasing volume in Manhattan totaled 35.7 million square feet, the highest annual total since 41.5 million square feet in 2019. During the fourth quarter, the market leased 10.7 million square feet of office space, building on Q3 leasing volume to achieve the strongest leasing quarter since Q4 2019, according to Savills Research & Data Services.
Most of the activity remains concentrated in Midtown Manhattan and among top-quality buildings in major transit hubs. The area accounted for 77% of leasing volume during the fourth quarter, its highest share since Q1 2021. The Penn Plaza, Grand Central and Plaza South submarkets combined to account for 48.2% of quarterly leasing volume.
Nearly 88% of Manhattan office leases of 50,000 square feet or greater were signed in Class A or trophy buildings, which is putting pressure on the pool of available top-tier spaces that command premium pricing, said Savills. However, Manhattan office employment has been declining for 17 straight months and was down 0.7% year-over-year for the fourth quarter despite the stronger leasing environment.
Office availability in Manhattan fell 110 basis points during the fourth quarter to 18.6%, a drop of 5.7 million square feet. This was the largest single-quarter decline on record as both sublet and direct space fell from recent highs. In addition, new inventory has slowed and some available space has been taken off the market due to leasing activity and conversions, said Savills.
Class B and Class C availability fell 60 bps to 19.5%, while Class A availability declined 130 bps to 18%, according to the Savills report.
Although indicators were positive during the fourth quarter, challenges remain for Manhattan’s office market.
“The office-to-residential conversion pipeline has swelled to nearly 15 million square feet of space, but more conversions are needed to bring availability down toward long term equilibrium,” said Savills. “Distress loans also remain a near-term challenge, with many owners opting for short-term extensions and modifications to avoid default in hopes of a macro turnaround.”
More than 27 billion in CMBS debt tied to Manhattan office buildings matures over the next three years, but high-end buildings and well-capitalized owners are seeing fortunes improve, the report said.