Office Market Overview Report: Part Five

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• 2023 NYC Average Lease Terms Down From 2019 Across Office Building Classes
• Prime Class A Reached Peak Transaction Sizes Since 2019 While Class B/C Demonstrates Resilience
• FIRE and TAMI Tenants Make Up Lion’s Share of NYC Relocations Tracked Since April 2020
• TAMI and FIRE Tenants Preferred Moving to Larger, Newer, and Higher-Class Buildings
• Grand Central Gained Most Relocating Tenants While Murray Hill Saw Biggest Exodus

NYC Effective Rents for Prime Class A Office Transactions Are up Most From 2019, but Dipped Over the Last Two Quarters

New York City’s effective rents for Prime Class A office space are up 18.8% from the 2019 quarterly average to the comparable statistic for 2023, outpacing rates of change for other Class A buildings and for Class B/C transactions. However, Class B/C effective rents have increased the past two consecutive quarters and are now up 17.3% from their trough in 2021. Meanwhile, Prime Class A effective rents have declined from their prior peak in the first quarter of 2023, despite the average age of buildings involved in transactions remaining stable from 2022 to 2023 overall. The starting rent for these transactions averaged nearly $115 per square foot across 2023’s four quarters, but the effective rent averaged nearly 17% lower over this period, marking the largest spread during the 2018 through 2023 period.

2023 NYC Average Lease Terms Down From 2019 Across Office Building Classes

Average lease terms for executed deals in 2023 still fell short from 2019 levels across Prime Class A space, as well as other Class A and B/C completed office transactions in New York City. However, Prime Class A lease terms have come closest to filling the gap: Lease terms for this part of the market were 9.1 months shorter in 2023 as compared to 2019’s quarterly average. Class B/C’s average lease term across 2023’s quarters fell short of eight years, despite an uptick at the end of the year due to large leases like Polo Ralph Lauren’s 10-year renewal at 601 West 26th Street.

Prime Class A Reached Peak Transaction Sizes Since 2019 While Class B/C Demonstrates Resilience

Among closed transactions, New York City’s average lease size has recovered to or surpassed pre-pandemic levels in 2018 or 2019 across Prime Class A buildings and Class B or C office buildings. Other Class A buildings, excluding those deemed “Prime,” experienced a decrease in the average transaction size from 2020 through 2022. However, there was an uptick in 2023, though it still remained below the levels seen in 2019.

Average transaction size for deals closed in Prime Class A product, including trophy, new construction, or recently renovated Class A buildings, reached its highest level since 2019 in 2023, and surpassed the five-year average of 35,634 square feet. While much of the concern on falling demand centers around the future of Class B and C buildings, closed transaction sizes in New York City’s office market in these building classes have increased each year since 2020. The average for 2023 was driven up by a 530,000-square-foot lease from New York City government in Downtown Manhattan as well as Polo Ralph Lauren’s renewal in Chelsea for more than 254,000 square feet.

FIRE and TAMI Tenants Make Up Lion’s Share of NYC Relocations Tracked Since April 2020

The FIRE sector (39.2%), followed by the TAMI sector (16.6%), accounted for the largest share of relocations by total square footage since April 1, 2020, according to CompStak’s tracked relocations.

The most notable relocations included D.E. Shaw, the global investment firm, which topped FIRE relocations and will be moving from the Sixth Avenue submarket to a 282,505-square-foot space in Hudson Yards in 2022. IBM’s relocation to 1 Madison Avenue in Gramercy Park/Union Square was among the largest TAMI moves, while Freshfields Bruckhaus Deringer’s move from Midtown Eastside to World Trade Center ranked high for sizable Legal Services relocations since April 2020.

CompStak last analyzed this in fall 2022 upon CompStak’s move to 675 Avenue of the Americas from 36 Cooper Square, both located in Midtown South.

TAMI and FIRE Tenants Preferred Moving to Larger, Newer, and Higher-Class Buildings

Since April 2020, the average size of the previous building of relocating TAMI and FIRE tenants is 672,461 square feet, while that of the newer location is 869,656 square feet. Most relocating tenants in both sectors opted for newer buildings, as well as ones of the equivalent or higher building class. Overall, more than 60% of tenants moved from one Class A building to another, but 16.2% upgraded their space from a Class B to a Class A building.

Grand Central Gained Most Relocating Tenants While Murray Hill Saw Biggest Exodus

Among the 21 Manhattan submarkets analyzed by CompStak, six saw a net gain in their share of total tenants since April 2020, while nine lost and six remained stable.

Of all the submarkets, Grand Central saw the greatest net gain in office relocations, followed by Hudson Yards, World Trade Center, and Midtown Eastside. The Murray Hill submarket, meanwhile, saw the greatest net outflow of relocating tenants, alongside Sixth Avenue and Park Avenue, according to relocation data tracked by CompStak.

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