By: Hadassa Kalatizadeh
Office leasing is off from its highs, but a new report from Colliers, says demand for the space has more than doubled since 2021.
As reported by Crain’s NY, office leasing activity was down to 2.7 million square feet leased in April, which is down 11.5% since March. The report, released Monday by Colliers commercial real estate agency, also had some optimistic news regarding demand for office space. “Demand is moving back in the direction of pre-pandemic levels of leasing activity,” said Franklin Wallach, an executive managing director at Colliers. He added, however “supply continues to outpace demand.”
The demand is mainly for Class A, newly constructed or renovated office spaces. Driving the demand is hope that workers will return to their desks in person and that the Covid-19 pandemic is close to its end phase, Wallach said. Pent-up demand is also driving the demand. In 2020 there was a 50% drop-off in leases being signed, leading to a rebound in 2021 and 2022, Wallace explained. He also noted that tenants are showing less fear and starting to sign longer leasing again, after sticking exclusively to short-term leases earlier on in the pandemic.
Still, leasing activity is currently 25% below 2019 levels. That is a substantial improvement over 2020 when activity plummeted to 50%, and 2021 when leasing activity was down 40%, Wallach noted.
The availability rate for office space in Manhattan has been mostly unchanged hovering around 17 percent since March. Overall availability, however, has jumped by over 73% since the pandemic began in 2020, the report said. Wallach predicted that when the market hits a 10% availability rate, it will reach its recovery.
As per Crains, average asking rent prices for offices has inched up by 0.7% since March, to $75.64 per square foot in April, which is still lower than in March 2020, when average rents were $79.47 per square foot.
The sublet sector is also helping the market. The sublet market has grown by two-thirds since the pandemic hit, increasing competition and driving prices downward, Wallach explained. Currently sublets are averaging a 30% discount. In healthy markets, subleasing dies down in the city, but in an economic recession, subletting sees an uptick, like we are seeing now.
Also notable, is that there’s close to 75% more supply of office space now compared to the last two years, with about 40 million square feet of space added to the market. “That doesn’t go away magically even with two strong quarters of leasing,” said Wallach. “The market is going to have to contend with this for quite some time before it can finally absorb it.”
