ECONOMY: Labor Markets Continue to Rebound in the Fourth Quarter
Total employment in New York City slowly rebounded since bottoming out in April 2020, increasing by 372,000 jobs from April through November. Despite eight months of steady gains, total employment remains 572,000 jobs below the peak recorded in February 2020. Private sector employment increased by nearly 369,000 jobs over the past eight months, while education and healthcare surpassed 1.0 million jobs for the first time since March 2020. Office-using employment regained 51,000 jobs from June through November but remains 130,000 jobs below the February 2020 total.
SUPPLY AND DEMAND: Limited Demand Leads to Anemic Leasing in 2020
Despite gradual signs of improvement in the New York City labor market, new leasing activity in 2020 registered an all-time low of only 12.8 million square feet (msf) as demand steadily lost momentum since the onset of COVID-19. Fourth quarter leasing reached nearly 2.0 msf, down from the prior 10-year quarterly average of 7.3 msf. TAMI (technology, advertising, media and information services) propelled most of the activity for new leases 10,000 sf and larger, accounting for 32.9% of 2020 leasing. Major commitments from Facebook, TikTok and Apple represented 43.7% of TAMI activity. Lease renewals registered 7.2 msf in 2020—8.5% lower than the 7.8-msf total recorded in 2019.
The Manhattan overall vacancy rate climbed by 190 basis points (bps) during the fourth quarter to a 26-year high of 15.2%, partially driven by 11 blocks each greater than 100,000 square feet (sf) entering the market. Overall vacant space increased to 61.4 msf— the highest total since 1994. Sublease vacant space increased to a historic high of 19.3 msf—73.2% higher compared to 11.2 msf registered in 2019. Another 6.2 msf of “shadow” sublease space being tracked could lead to a more sizeable increase in vacancy as it potentially enters the market in 2021. The TAMI sector accounts for 42.2% of the shadow space being tracked, followed by financial services at 32.1%.
PRICING: Sublease Additions Put Downward Pressure on Rents
The increase in sublease availabilities put pockets of downward pressure on asking rents by year-end as Manhattan overall asking rents fell by $0.97 per square foot (psf) in the fourth quarter to $73.16. Class A rents registered a more substantial decline, falling by $1.33 to $80.18 psf. Midtown asking rents dropped by $0.94 psf to $77.06, while Class A rents fell by $1.17 to $84.12 psf, led by lower-priced sublease space entering the market at 237 Park Avenue and 1633 Broadway. Midtown South asking rents dipped by $0.36 psf to $72.70, as Class A asking rents fell by $2.06 psf to $88.33 driven by a price reduction of sublease space at 75 Varick Street. Downtown overall asking rents dipped by $1.15 to $60.92 psf, while Class A rents declined $1.37 to $64.37 psf due to lower priced sublease at 55 Water Street and One and Seven World Trade Center.