The subleasing frenzy that plagued the Manhattan office market during the coronavirus pandemic could be in remission, according to a new report from Colliers.
In its 1Q office market report, Colliers found that available sublease space represented 23 percent of total inventory, the lowest share since July.
But with overall supply continuing to outweigh demand, experts say it’s way too early to celebrate.
“To paraphrase Churchill, the fall of the New York City office market is perhaps at the end of the beginning. By that I mean we are at the very beginning of the return to normalcy,” said sublease expert, Ruth Colp Haber of Wharton Properties.
“However, progress will be slow and New York is facing great headwinds due to the hybrid work phenomenon. Things will get better, but commercial real estate will take time to recover.”
According to Colliers, available sublease space is 75 percent more than it was in March 2020, which means a far larger amount of the sublet inventory will need to be absorbed or subleased before it approaches anywhere near pre-pandemic levels.
All told, 17.1 percent of Manhattan office space – or 91.64 million square feet – is currently available for lease, a new record high for the city where a 10 percent rate is considered healthy. The rate was last at 10 percent in January 2020.
However, Colliers reported increased May leasing activity, another sign that the sector is on the mend with the SEC’s 303,000 s/f extension at 200 Vesey propping up the numbers. Rents also ticked up to an average of $73.26 psf, another sign of improved health, although it’s still down nearly eight percent on pre-pandemic levels.
Frank Wallach, senior managing director, Research at Colliers, said, “The Manhattan office market is still at a point of supply outpacing demand. Even though leasing volume increased in May, the market was still well below the amount of activity seen pre-pandemic.
“It must be remembered, though, a large portion of the supply that came on the market in May was either due to new construction or major renovations (such as 295 Fifth Avenue) or committed tenant relocations that occurred pre-pandemic (such as 5 Times Square and 360 Park Avenue South).”
Wallach said the decrease in sublet availability could be a sign of “the beginning of the end” of Manhattan’s sublet increase post-pandemic, “or this might just be a temporary respite.”