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Office leasing in New York City increased in July, with Manhattan signing 3.9 million square feet of leases, 57.9% higher than in June and 66% more than a year earlier, according to data from Colliers. This growth is attributed to the surge in occupier demand and the withdrawal of additional blocks of space. The month of leasing was higher than the five-year rolling monthly leasing average of 2.3 million square feet and the prepandemic average of 3.6 million square feet. However, availability dropped to 17.6%, the steepest decline since September 2022. Sublease supply also dropped, reaching the smallest market seen since April 2022 at 19.8 million square feet.
The Manhattan office market still has 41 million square feet of excess office space, and the recovery road appears to splinter between submarkets. The majority of leases were concentrated in Midtown, with landlords signing 3 million square feet of deals and the five largest leases of the month. Midtown South accounted for 680 million square feet of leasing activity, with a drop in availability and asking rents. Lower Manhattan, however, saw a decrease in leasing activity, with owners signing only 180 thousand square feet of deals in the month.
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Park Avenue in Midtown Manhattan is attracting financial titans to acquire expensive workspace. Office availability is just above 8%, with average asking rent exceeding $100 per SF. The city has an average availability rate of 22%, with high-quality spaces in superior locations. Recent deals include Blackstone expanding headquarters, Ares Management expanding, and JPMorgan Chase acquiring 250 Park for $300M. Financial firms are increasingly leasing space on Park Avenue in New York City, as the area has seen a 15% availability increase in 2021 due to firms opting for remote work. Landlords have also been renovating lobbies and adding amenities. The central location of Park Avenue, which runs through Grand Central, has attracted financial firms due to its recognizable address and history. The 2017 Midtown East rezoning brought plans for new towers, including JPMorgan and Citadel, which could compete for tenants. Despite the increased demand, some companies and investors are also considering Lexington and Madison avenues, which sandwich Park, due to concerns about potential space shortages.
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Swiss bank UBS' real estate investment arm has auctioned off a Midtown Manhattan office building, 135 West 50th St., for an undisclosed price. The building, built in the 1960s, is now 35% occupied and subject to a ground lease after UBS sold the land to REIT Safehold. The building would be difficult to convert into residential due to its short ceilings, randomly placed columns, and location blocking light. Sales for office buildings have surged in recent months, but many are expected to be turned into residential conversions.
Office leasing has also jumped, but the majority of deals are for space in new construction or highly amenitized buildings near transportation hubs. Distressed office property valuations have fallen by over 50% on average from their original valuations at loan issuance. Fitch Ratings projects the CMBS office delinquency rate to nearly triple from 3.6% as of February to 9.9% in 2025, surpassing the post-Global Financial Crisis peak. In the second quarter, commercial foreclosures occurred at the highest rate since 2015, and $94B of commercial real estate debt is in distress, with another $201B at risk.
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“The world’s most troubled bank” is working to clean up $16 billion in loan exposure
Deutsche Bank AG is preparing to remove $1 billion in US commercial property loans from its portfolio to clean up its balance sheets. The bank, referred to as "the world's most troubled bank," has been working for months to stabilize its business, but still had $16 billion in loan exposure to US commercial real estate at the end of the second quarter. The commercial market has been hit hard by ballooning borrowing costs and the return-to-work outlook is not improving enough to make investors giddy as profits dwindle across portfolios. Deutsche Bank's loan book is underperforming and dragging down its profits, which hit a new high last quarter. The market's fate is uncertain, with some experts predicting it has already bottomed out, while others are optimistic. Regional and community banks hold nearly two-thirds of the commercial real estate loans on the books.
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New requirements will likely force more appraisals, income proofs
Fannie Mae and Freddie Mac are implementing stricter rules for commercial lenders and brokers following recent mortgage fraud schemes. The updated parameters could be implemented as early as this summer, following Freddie's announcement earlier this year. The new requirements include lenders having to independently verify borrowers' financial information and verify their source of funds for apartment complexes and multifamily properties. They may also require independent due diligence on the appraised value of a property and evaluate its financial performance.
The new system would replace previous rules that allowed lenders more flexibility in verifications, allowing them to skip costly audits. The new rules are triggered by the surge in property prices in the three years before interest rates skyrocketed, which led to fraudulent valuations. Freddie has already started requiring rent receipts and sifting through loan financials to identify fraudulent documents.
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Coworking firm Jay Suites has purchased a Bryant Park office building in New York for $35 million. The 12-story building, which spans about 142,000 square feet, was previously owned by Fraglow Realty since at least 2001. Jay Suites, founded in 2008, will occupy the sole vacant floor of the building, which is 80% leased. The company will not convert the entire property into a flexible office space location, allowing existing tenants to keep their locations. Jay Suites has nine Manhattan locations, including one in Chelsea, two downtown, and seven in Midtown. The building was initially built as a department store for Jacob Astor's sister and has large windows and high ceilings. ABS Partners Real Estate, a broker and property owner, owns and manages about 3 million square feet of property in New York. The firm also helped broker the sale of 6 E. 45th St., which was bought by investment firm Sioni Group for about $27 million.
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BlackRock is expanding its headquarters at Related's 50 Hudson Yards office tower, adding over 50,000 square feet of space. The tower, which opened in late 2022, is nearly fully occupied by tenants like Meta Platforms and Truist Financial. BlackRock was an anchor tenant for the tower, agreeing to move its headquarters years before it was completed. Other tenants include Oxford Properties and Ontario Municipal Employees Retirement System, which will also open an office at the tower. The move is driven by the belief that world-class, well-located, and highly amenitized workplaces are critical to attract and retain the best talent in the market.
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In July, Manhattan's office market experienced a significant increase in leasing activity, with companies leasing about 3.9 million square feet of space. Private equity giant Blackstone's lease at 345 Park Ave. in Midtown was the largest since 2019, surpassing the five-year rolling average for the month and the monthly average for 2019. However, the availability rate dropped to 17.6%, the sharpest monthly decline since September 2022, and the average asking rent was $74.30 per square foot. The majority of activity took place in Midtown, where firms leased just over 3 million square feet of space, more than doubled its total from June and more than tripled its total from July 2023. Midtown South saw slower activity, with firms leasing about 681,000 square feet of space, down 18% month over month but up more than 50% year over year. Downtown saw a sharp decline in leasing activity, with most activity coming from just one lease: StubHub subleasing 103,000 square feet at 4 World Trade Center.
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Clifford Chance, a Midtown law firm, has vacated 40% of the space at 31 W. 52nd St., a 750,000 square-foot tower owned by landlord Paramount Group. This loss has impacted Paramount's 11 million-square-foot office portfolio, with occupancy falling to 86% in the second quarter from 89% in the first. Paramount officials claim their office towers remain attractive to potential tenants, who are checking them out more often. Occupancy has improved at 1301 Sixth Ave. this year to 81% from 75%, and leasing trends are encouraging. However, investors don't share Paramount's confidence, and its stock is trading for just a bit more than $5 a share, which is about a dollar above its "scorched earth" value. Paramount is the smallest of Manhattan's publicly traded office investment trusts, so its fortunes are tied to a smaller group of tenants. Law firms are among the most sought-after tenants because they tend to soak up lots of space and usually occupy the middle or lower floors, leaving the best views to clients who pay them $2,000 or more per billable hour.
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Sales of new homes at China’s largest property developers declined at a faster pace in July
China's property sector is in poor shape, with sales of new homes at China's largest developers declining at a faster pace in July. Transactions at the country's top 100 real-estate developers fell 20% to 279.1 billion yuan last month, equivalent to about $38.7 billion, widening from the 17% drop seen in June. On a monthly basis, sales slid 36%. The data, along with surveys showing continued weakness in China's manufacturing sector, suggest that the economy isn't off to a great start in the third quarter.
Economists are skeptical that Beijing's efforts to revive the real-estate market and the broader economy are yielding results. In May, policymakers rolled out their boldest housing rescue measures yet, scrapping minimum interest rates on mortgages and reducing down-payment requirements for would-be home buyers. Beijing also urged local governments to buy unsold property to turn into affordable housing, with the central bank pledging billions in cheap funding for the initiative. However, cautious consumers remain reluctant to buy homes amid growing concerns about the economy. Cash-strapped local governments and affiliated state-owned enterprises have been slow to snap up unsold properties, struggling under big debt burdens as land revenues drop.
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Tenants Flock to Areas of Midtown Manhattan
Leasing activity in the New York office market has not reached pre-pandemic levels, with some neighborhoods outperforming others. Midtown Manhattan, specifically the Plaza District and Penn Plaza submarkets, has seen more office leasing than mid-year averages. The Grand Central neighborhood is just shy of its pre-pandemic average. Tenants are increasingly seeking quality office buildings, with the availability rate among these buildings declining by 170 basis points. Neighborhoods with fewer newer or recently renovated buildings are expected to have leasing totals trailing pre-pandemic averages. Markets farther away from mass transit, such as Penn Station and Grand Central Station, have struggled. However, available office space has increased across all major U.S. cities with a large number of office buildings.
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