Manhattan absorption negative in H1 2024
Manhattan employment surpassed its 2019 peak late last year and continues to expand. Jobs are up more than 26% from the pandemic bottom, though the pace of growth is normalizing. Net absorption was negative 3.0 MSF in the first half of 2024, somewhat worse than the negative 2.0 MSF recorded in the first half of 2023; the addition of 1.2 MSF of brand-new office space in Q1 contributed to the negative demand. Overall, absorption has been led by Class A as tenants show a 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, indicating growing confidence in the market. Supporting the increase in activity, recent reports from the Real Estate Board of NY suggest mid-week office attendance is nearing 75%.
Vacancy is stabilizing as rents escalate
Direct vacancies have been rising steadily since 2020, reaching 14.2% at year-end 2023. While still elevated at roughly double the pre-COVID level, Manhattan's direct vacancy rate dropped 0.2 percentage points from year-end and now stands at 14.0%. Rents have continued their rise despite the high vacancy level, increasing to $76.40 PSF at mid-year. 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 4.3% from year end 2023, topping the $80 PSF mark for the first time since 2019. Prime rents have now risen to within 5% of their 2020 peak while overall rents are about 6% below that benchmark.
Retail sales boost a still-sluggish volume
Manhattan continues to see a dearth of true core office sales as widespread vacancies, high cost of debt, and an uncertain economy have contributed to lackluster deal volume. Overall, sales remained extremely low in the first half of 2024, though retail deals reached their highest first-half total since 2019. The largest retail deal of 2024 was the retail condo at 717 Fifth Avenue, which fetched a whopping $963 million, or almost $8400 PSF. Office sales totaled $2.1 billion, compared with $2.8 billion during the same period of 2023. Large office sales in the past six months included 1740 Broadway, which sold for $308 PSF, a massive haircut to its 2014 sale price of $1,000 PSF; and 780 Third Avenue, which traded for $362 PSF. There were also several sales of office buildings targeted for residential conversion, particularly in Manhattan's Downtown and Midtown South submarkets.
