The office market continues to face significant challenges, as indicated by a recent report from Savills revealing a record-high availability of office space in the second quarter.
With 70.3 million square feet ready for leasing, constituting 19.7 percent of available office space, the figures are the highest observed since the onset of the pandemic.
This data underscores the ongoing struggle faced by the office market and highlights the advantageous position of tenants in lease negotiations.
Decreased Leasing Activity
The report also highlights a notable decline in leasing activity, with a 12.1 percent drop in the first half of the year compared to the same period in 2022.
Moreover, leasing activity in the second quarter was a significant 25.2 percent lower than the pre-pandemic average for April through June.
These figures illustrate the considerable impact of the pandemic on the demand for office spaces and the resultant challenges faced by property owners and real estate developers.
Lease Renewals and Expansions
The report reveals that lease renewals and expansions accounted for 49 percent of activity in the second quarter.
Although this percentage is lower than the previous quarter’s 63.1 percent, it remains higher than historical levels.
This trend highlights the inability of new leasing activities to significantly reduce the overall availability of office space, indicating the prevailing challenges in the market.
Amazon’s Leasing Activity
While the tech and media industries have shown sluggish leasing activity, e-commerce giant Amazon stands out as an exception.
Amazon renewed its lease for 210,000 square feet at 1440 Broadway near Penn Station and signed a new lease for 90,000 square feet at 75 Rockefeller Plaza.
This move demonstrates the company’s confidence in the future of office spaces and its commitment to expanding its physical presence.
Industry Share and Major Transactions
The financial and legal services sectors dominated the office market in terms of leasing activity.
Out of the top 10 transactions in the quarter, seven belonged to these two industries, with Amazon accounting for two of the remaining three.
The largest deal of the quarter involved the Department of Citywide Administrative Services, which secured 840,000 square feet at 110 William Street in the Financial District.
Law firms Paul Hastings and Wachtell, Lipton, Rosen & Katz also made significant lease renewals, further contributing to the industry’s strong presence.
The Financial District faced significant challenges in filling office spaces, leading to a 29.3 percent availability rate—the highest among all submarkets in Manhattan.
Consequently, asking rents in the Financial District plummeted to an average of $57.62 per square foot.
Only the City Hall area had a lower average asking rent at $48.56 per square foot. In contrast, Hudson Yards, known for its modern Class A offices, boasted the highest average asking rent of $136.97, followed by Plaza South at $112.07, which also had the lowest availability rate at 14.2 percent.
The office market continues to grapple with the aftermath of the pandemic, as evidenced by the record-high availability of office space and declining leasing activity.
The situation has given tenants the upper hand in lease negotiations.
While some industries, like tech and media, have shown limited activity, the financial and legal services sectors have remained comparatively active.
As the market evolves, it will be interesting to observe how property owners and real estate developers adapt to the changing dynamics and explore innovative strategies to attract tenants and revitalize the office market.