Manhattan posts negative 2.8 million SF of net absorption
Manhattan continues to make slow and steady progress toward recovery, but 2022 ended on a quieter note than expected. Employment has improved considerably from the April 2020 bottom and is now within 2% of the pre-pandemic peak level, though many NYC offices are still not fully reoccupied. Net absorption was negative for 2.8 million square feet, still a sharp improvement on both 2020 and 2021 results. Despite the flight to quality, Manhattan's Class B grouping had stronger absorption than its Class A counterpart, as the latter was faced with new availabilities at some of its impending completions.
Rents are rising despite elevated vacancy
Direct vacancies increased mildly from a year ago to 11.8% at year-end, extending the cycle-high levels attained during the pandemic. The largest deals signed in 2022 have been concentrated among the city's newest and most recently renovated spaces, encompassing higher price tags. Landlords are taking notice, pushing asking rates up in response and generating a third straight quarter of year-over-year growth. Most recently, Manhattan prime rents gained 6.0% from 2021 to $76.35 PSF. Prime rents are now 9.8% below their pre-pandemic peaks, while overall rents are 10.6% below that benchmark.
Sales volume remains sluggish in 2022
There have been few true core office sales since the pandemic began, and lacklustre deal volume persisted in 2022, slowing further in the second half of the year amid rising interest rates and an uncertain market.
Office sales totaled $10.5 billion, about 4.6% below the $11 billion transacted during 2021.
The average office sales price in 2022 was $648 PSF, about 23% below the 2021 average, and pulled down by the inclusion of noncore transactions.
Manhattan cap rates for prime office deals elevated 0.6 pp from 2021 to 5.0%, while cap rates in the overall Manhattan office market.