Written by Herbert Lash
NEW YORK (Reuters) – The New York City office market rebounded in the third quarter from a year earlier, although rentals remained below levels seen before the rise of remote work during the COVID-19 pandemic, and higher interest rates and a stronger dollar triggered a fresh dip. Investment in the sector.
Office rental volume rose 27.6% to 9.23 million square feet, the strongest quarterly gain since the end of 2019 — a huge year for renting in New York, according to Colliers International (NASDAQ:) Inc.
Leasing volume this year so far has reached 24.17 million square feet, or nearly 50% more than the same period in 2021 and less than 4% of last year’s total. Volume remained below the quarterly average of about 9.1 million square feet in the five years through 2019.
“We keep hearing about big pending deals,” said Frank Wallach, executive director of New York Research at Colliers, adding that leases in the business for months are typically approaching by the end of the year.
“Not all but a large number of them are coming to an end as we head into the post-Thanksgiving rush, New Year’s Eve because there is usually a desire to finish everything and take care of it,” Wallach said.
In another positive sign, office space availability fell 0.8 percentage points to 16.4% in the third quarter, the largest quarterly decline in eight years, Colliers said.
Wallach said the decline has pushed availability to its narrowest level since March 2021, but is still well above the 10.2% level in the first quarter of 2020, at the start of the pandemic.
The lease increase was driven by several large leases in Hudson (NYSE: Yards District) on the Hudson River, including the largest deal so far this year, a 456,000-square-foot deal from KPMG in August.
The accounting firm’s lease on 2 Manhattan West, a 58-story, 2 million-square-foot tower due to open next year, signals a journey into quality during the pandemic.
But the deal also represents a 40% reduction in KPMG’s New York office footprint as it consolidates multiple office locations into a single location, an efficiency drive, and embraces the hybrid office, a model that can allow businesses to reduce their space needs.
The latest data on potential future rentals for office space in New York from View The Space Inc, a multidimensional commercial real estate platform, last week showed a 22.8% drop in August new rental demand in New York.
VTS expects leasing activity to be “very good” for the coming months, but if no more new demand is seen by the end of the year, leasing is expected to slow in 2023, according to VTS.
“The next quarter or two will be a real indication because we will see the people who have been in the market, are they going to end up dealing or not?” said Nick Romito, CEO of VTS.
Office building sales fell 71% in the third quarter to $1.2 billion, an amount that often accounts for the sale of individual assets during 2015 and 2016.