Manhattan posts first positive absorption since 2018
Manhattan continues to see its economy recover from the depths of COVID. Employment recently surpassed its late 2019 peak and is up 25% from the pandemic bottom, though the pace of growth is normalizing. Net absorption was 1.9 million SF in 2023, the best result in nearly a decade. The positive result was largely driven by Class A demand, as tenants showed a preference for newly-available and trophy assets; Class B absorption ended the year in negative territory. In addition to the healthy dose of new leasing activity, there were a large number of significantly-sized renewals and extensions signed throughout the year, many for terms of 10 years or longer, indicating growing confidence in the market.
Vacancy is rising, but so are rents, driven by trophy asking rates
Direct vacancies have been rising steadily since the start of the pandemic and reached 14.2% at year-end. Despite the increased vacancy levels, rents have been on the rise again, marking a second straight year of increase. Gains are being driven by large blocks of available trophy space, with some priced upwards of $150-$200 PSF, but excess sublet space continues to keep growth in check. Most recently, Manhattan prime rents gained 1.3% from year-end 2022 to $77.36 PSF and overall rents similarly experienced 1.8% growth to $74.09 PSF. While still below their pre-pandemic peak, rents are now in line with 2018 levels.
Sales Volume Remains Sluggish
Manhattan continues to see a dearth of true core office sales, as rising interest rates, widespread vacancies, and an uncertain economy have contributed to lackluster deal volume. Overall, sales remained extremely low during 2023, though Industrial deal volume saw a slight increase from 2022. Office sales totaled $4.6 billion, compared with $10.9 billion transacted in the prior year. Despite the sky-high pricing on a few deals, the average office sales price was around $750 PSF, pulled down by the inclusion of non-core transactions.
