The Manhattan office market is slow to start the year

The evolution of the Manhattan office market in recent years provides a good analogy to the sector’s nationwide woes. According to a new Commercial property executive office debt maturity special report, approximately $615 billion in loans are expected to mature over the next five years in this sector.

Development stalled, with no new projects in the borough year-to-date through April, while a single building was completed in that time frame. A total of 2.7 million square feet of office space was under construction in Manhattan.

Investment activity fell, as did the average price per square foot — to $351 as of April — but remained more than double the national average. Although landlords signed some big leases, vacancies did not improve and stood at 17.6 percent.

Read on for a summary of CommercialEdge’s latest data on the Manhattan office market.

Several major projects support Manhattan’s office pipeline

In April, Manhattan had 2.7 million square feet of office space, representing 0.6 percent of existing stock. Meanwhile, the national figure was 1.2 percent. Manhattan lagged most gateway markets in terms of space under construction as a share of stock, with the exception of Chicago (0.3 percent).

Manhattan was on par with Los Angeles (0.6 percent), followed by Washington, D.C. (0.9 percent) and several metros with above-average numbers — Seattle (2.3 percent), San Francisco (3.2 percent) and Miami (4.0 percent). .

Activity continued along national trend lines, as Manhattan recorded no new construction starts year-to-date through April. A single, 87,000-square-foot building, which includes 57,000 square feet of profitable office space, came online to the borough on a year-to-date basis in April. Activity slowed to almost a standstill, in line with most gateway markets. During the same period last year, a single building of 270,430 square meters was completed.

The largest project under development was 270 Park Ave. JPMorgan Chase took the lead on the property in November of last year and expects to complete the 2.5 million-square-foot building in 2025. The 60-story Midtown East skyscraper will be powered entirely by renewable energy and aim for LEED Platinum specifications.

Several gateway markets stood out in terms of office space to come online in this period, including Boston (1.4 million square feet), San Francisco (1.4 million square feet), Chicago (875,000 square feet), and Los Angeles (303,175 square meters) .

As debt matures, investors scramble to find value

Another important indicator of how office debt maturity is approaching on the sector was the number of refinancing and restructuring agreements recorded during these first four months. Two such massive deals closed in April. SL Green and Vornado secured a two-year extension on the $1.1 billion mortgage at 280 Park Ave. L&L Holding received $911 million in refinancing for its building at 425 Park Ave.

Manhattan investors traded a total of $290 million in conventional (non-portfolio) office sales in the year to April, down significantly from the $860 million recorded in the same period last year. The average price per square foot reached $351 this April, which was more than double the national figure of $157.

Compared to other gateway markets, Manhattan remained at the more expensive end of the rankings, despite average figures being down. Washington, D.C. was close behind ($345 per square foot), while several metros outperformed the city — Los Angeles ($359), San Diego ($397) and San Francisco ($407).

The value of office buildings continued to decrease at the beginning of this year. One of the most notable examples was the largest year-to-date sale recorded in April. Yellowstone Real Estate Investments purchased the 603,470-square-foot asset at 1740 Broadway for $185.9 million—the remaining value of the loan on the property. This building previously changed hands in 2014, for more than $600 million. EQ Office, the previous owner, defaulted on the 2022 asset-backed CMBS note.

Vacancy does not improve in the Manhattan office sector

Manhattan’s vacancy rate reached 17.6 percent, up 80 basis points over the 12-month period ending in April. This was 120 basis points below the national figure and on the higher side compared to other gateway markets.

Although office absorption is expected to remain negative through 2025, according to a recent report from NAIOP, a number of significant leases closed in Manhattan’s office sector through April.

George Comfort & Sons signed a 338,085-square-foot lease with tenant American Eagle Outfitters Inc., at the 63 Madison Ave. property. The 20-year deal included a direct lease of 108,194 square feet and a sublease of 162,291 square feet with CBS.

In March, Citizens Bank signed a 74,000-square-foot lease at 1301 Avenue of the Stars. Owner Paramount Group bought the 1.7 million-square-foot asset for nearly $1.5 billion in 2008.

Boston (12.4 percent), Miami (13.0 percent), Washington, DC (16.8 percent) and Los Angeles (16.5 percent) all fared better than Manhattan in terms of vacancy. At the other end of the spectrum, San Diego (18.4 percent) and San Francisco (25.9 percent) posted even larger vacancies.

Shared space providers expand

Manhattan’s shared space segment totaled approximately 9.5 million square feet—2.5 percent of total office space for rent—the largest of all gateway markets.

WeWork was by far the largest co-working provider in Manhattan, with 4.9 million square feet of space spread across 41 locations. The second largest was Industrious, with 875,000 square feet of common space. The company recently expanded its Manhattan footprint with a lease extension and expansion at 860 Broadway, to a new total of 27,630 square feet.

Other large flexible office space providers included Regus, with 750,000 square feet across 23 locations, and Convene – with 10 locations spanning 550,000 square feet. The firm also expanded its lease at 360 Madison Ave., to a total of 68,000 square feet.

Among other gateway markets, Miami surpassed Manhattan in terms of coworking as a percentage of total office space, at 3.7 percent (1.6 million square feet). Other metros with a significant share included Los Angeles (2.2 percent, 4.3 million square feet), San Francisco (2.0 percent, 1.3 million square feet), Seattle (2.0 percent, 1.3 million square feet) and Washington, DC (1.6 percent , 3.3). million square meters).