Before the pandemic, Manhattan’s office sector never had an average vacancy rate of more than 11% a year for decades. Now, city officials are warning that Manhattan building owners will face office vacancy rates of more than 20% for most of this decade.
NYC’s budget analysts and a growing number of CRE analysts are projecting that the office vacancy rate in Manhattan—now at a record 22.7%—will continue to languish above 20% through 2026.
Asking rents for office space will end the year below pre-pandemic levels—their lowest level in a decade—according to the city’s latest forecasts, Bloomberg reported. Asking rents in Manhattan offices averaged $75.13 per square foot in April 2023, down 50 cents in a YoY comparison, according to a Colliers market report.
The city’s budget experts said the office vacancy rate in Manhattan won’t drop below 19% before the middle of 2026. The city has estimated that more than half of Manhattan’s 450M SF office inventory is “underperforming,” a condition that office building owners are calling “obsolete.”
City officials are keeping a close eye on the prospects for the CRE sector in Manhattan, where sales activity plunged by 53% in the first quarter. Commercial property taxes contribute 20% of NYC’s total tax revenue, with office buildings accounting for about 10% of that.
The anemic pace of NYC investment sales in the first quarter puts 2023 on a pace to be the slowest year for CRE sales since 2009.
The Q1 2023 total of $2.2B in commercial real estate investment sales involving 108 properties in New York City is a 59% decline across the trailing four-quarter average and a 53% decrease from Q4 2022, according to Avison Young data.
The decline in investment sales was seen across all sectors. Only two apartment buildings and one office tower traded for more than $100M.
Based on the decline in transaction activity, the city can expect tax revenue to flatten in a year when NYC is spending millions to house migrants in underused hotels—including the landmark Roosevelt Hotel on Manhattan’s East Side—and high school gymnasiums.
A growing consensus of experts believe that return-to-office campaigns have largely stalled and are unlikely to regain the momentum they briefly enjoyed last fall when average occupancy levels finally breached more than 50% in urban centers including NYC for the first time since the pandemic began.
Since then, NYC’s occupancy average has plateaued at an average of about 49%, according to Kastle’s weekly survey of entry-card swipes; Kastle’s 10-city national average also is hovering around 49%.
According to Scoop Technologies, which monitors workplace strategies in 4,500 companies for its quarterly index, 58% of companies allow employees to work a portion of their week from home, the Wall Street Journal reported.
The number of companies requiring employees to be in the office full time declined in Q1 to 42%, from 49% in Q4 2022, Scoop said. Employees at companies with hybrid strategies work an average of 2.5 days a week in the office.