Manhattan absorption improves again
Manhattan employment is at an all-time high and jobs are up almost 28% from the 2020 bottom, though the pace of growth is normalizing. Net office absorption was positive for a second straight year in 2024, recording the best result in a decade with 5.3 MSF taken up. In recent quarters, Class A has led overall absorption, indicating tenants’ clear preference for newly-available and trophy assets; the largest leases this year were predominantly in Class A space. We are also seeing significant long-term renewal and expansion deals by large, well-established tenants, indicating growing confidence in the market. Supporting the increasing activity, recent reports from the Real Estate Board of NY suggest mid-week office attendance is about 73%, with Class A buildings closer to 79%.
Rents are still climbing as vacancy stabilizes
Direct vacancies have been rising steadily since 2020, but the tide is turning thanks to an active leasing environment. Vacancies measured 14.4% at year-end 2024, just 0.2 percentage points higher than a year ago, compared with increases of 1 to 2 percent in each of the prior four years. Meanwhile, rents have continued their rise despite the elevated vacancy level, increasing to a five-year high of $75.70 PSF at year-end. Gains in asking rents are being driven by large blocks of available trophy space, with some priced upwards of $150-$200 PSF. Most recently, Manhattan prime rents gained 3.2% year-over-year, landing just below the $80 PSF mark at year-end 2024. Prime rents are now about 5.1% below their 2019 peak while overall rents are about 6.7% below that benchmark.
Sales volume improves from bottom
Manhattan investment sales increased this year, boosted by lowered interest rates and increasing clarity regarding valuations, while some investors scooped up distressed assets at bargain prices. Sales topped $10 billion in 2024, with both office and retail showing strong improvement from a year ago, though still below pre-COVID levels. The largest retail deal of 2024 was the sale of the retail condo at 717 Fifth Avenue, which fetched a whopping $963 million, or almost $8,400 PSF. Office sales of $7.6 billion surpassed 2023’s total of $5 billion and included several office buildings targeted for residential conversion.
