A recent report from real estate firm Colliers shows that nearly 2,000,000 square feet of Manhattan office space was leased in May 2024. Activity is a 70% increase over last year, which is leading to speculation that the New York office market is starting to return to pre-pandemic performance levels. This would be music to the ears of almost everyone involved in this important real estate sector.
Although a longer uptick in activity would be needed to offset the rising office vacancy levels that have plagued the commercial real estate industry since the end of the pandemic, this latest news is still eagerly welcomed by all related to the industry. This is equally true for regional bankers who hold hundreds of millions in mortgage loans and commercial landlords who service the debt.
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Office REITs and developers have been hit by high vacancy rates and rising interest rates since the end of the pandemic. This squeeze is creating the worst of both worlds. For most of the 21st century, Office REITs and commercial developers maximized their buying power by taking out short-term loans at the lowest possible interest rates.
The logic behind the strategy was that REITs and Office developers could continually refinance their debt at low interest rates even if their assets were underperforming. By and large, that strategy was successful until COVID threw two giant monkey wrenches into the works. First, stay-at-home orders crippled markets like Manhattan as entire companies began operating remotely.
Then, interest rates began to rise, and at the same time vacancy rates were rising. The resulting crash saw office vacancy rates rise to a nationwide average of nearly 20%, according to Moody’s, and contributed to the demise of several regional banks. The Mortgage Bankers Association recently estimated that nearly $1 trillion in commercial debt will mature by the end of the year.
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This explains why the news from New York is so encouraging. However, a closer look at May’s leasing activity shows that a few large deals accounted for most of the two million square feet leased. The biggest of the deals was a lease extension from Bloomberg on their space at 731 Lexington. The Bloomberg deal accounts for about a third of the total square footage and is the largest deal since 2019.
Three other deals at 22 Vanderbilt saw 300,000 square feet tied to long-term leases. It’s certainly a good start. Colliers research executive Franklin Wallach, who wrote the report, told the Real Deal website why it’s so important when he said: “Pre-pandemic, in any given month, we averaged well over three million square feet , so it’s always important when we talk about rental volume with that number in the same sentence.”
It will take sustained activity like what happened in May before Manhattan’s office market returns to its pre-pandemic performance, but Wallach is hopeful. He said, “Although demand is still struggling to keep up with supply, we have seen in many areas of the market an indication of stabilization. It is not a foregone conclusion. We certainly have to see how supply and demand balance each other out.” the other. out for the rest of the year.”
For obvious reasons, Wallach and his commercial real estate contemporaries want to see a few more big deals close in June. Back-to-back months with several million square feet leased could be the start of a sustained rebound for Manhattan’s office market. In any case, the increase in May was certainly welcome, because every square meter leased will benefit commercial lenders, investors and brokers.
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This article Manhattan Office Market Has Explosive Month With 70% Increase in Leasing Activity originally appeared on Benzinga.com
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