Experts cautiously optimistic as leasing numbers hint at recovery

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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.

RUTH COLP HABER

“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.

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

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.”

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