According to CBRE's Manhattan Figures Q1 2023 report, climbing interest rates, banking sector turmoil and economic uncertainties played a major role in constraining office leasing activity during the first quarter of the year.
During the first quarter, Manhattan office leasing totaled 3.85 million sq. ft., 35% below the five-year quarterly average of 5.89 million sq. ft. and down 32% from Q1 2022. On a positive note, renewal activity jumped 72% from the same time last year to end Q1 at 1.49 million sq. ft. Manhattan's Q1 availability rate rose 50 basis points (bps) from Q4 2022 and 20 bps from a year ago to 19.7%. Average asking rent during the quarter was flat at $77.18 per sq. ft.
"Economic uncertainty played a major role in corporate decision-making during the first quarter of 2023. We saw the three market characteristics common during times of uncertainty: limited new leasing, an uptick in renewal volume, and additions to the sublease supply," said Michael Slattery, CBRE's Director of Research, New York Tri-State. "The high-end market is still active, and the majority of the deals being completed are long-term, signaling enduring confidence in the market. However, near-term headwinds likely will persist for the remainder of 2023."
Leasing activity in Manhattan's Midtown market of 2.52 million sq. ft. during Q1 was 30% below its five-year quarterly average, while quarterly leasing was down 25% from the same time last year. As a result of lackluster leasing activity, net absorption for the first quarter of 2023 was negative 781,000 sq. ft., while the availability rate rose 20 bps from year-end 2022 to 18.5%. According to CBRE's report, average asking average rent of $83.21 per sq. ft. during Q1 remained flat quarter-over-quarter. Renewals totaled 726,000 in Q1, up 25% from the same time last year.
The Midtown South market also experienced lower leasing activity during Q1 20223. At 832,000 sq. ft., leasing was 33% lower than the five-year average of 124 million sq. ft. while the Q1 total was down 41% from last year's Q1 total. The market posted negative net absorption of 1.36 million sq. ft. in the first quarter of 2023 and the availability rate rose 120 bps to end the quarter at 20.4%. The average asking rent in Midtown South of $82.52 per sq. ft. was essentially flat from Q4 2022, but up 3% year-over-year. Renewals were robust, totaling 421,000 sq. ft., up 144% from Q1 2022.
Like Midtown and Midtown South, CBRE also states the Downtown market also posted tepid leasing activity in Q1, down 52% from the five-year quarterly average of 1.04 million sq. ft. and 43% from the same time last year. In contrast to Midtown and Midtown South, however, Downtown posted positive net absorption of 277,000 sq. ft. in Q1, moving the availability rate down 10 bps from a year ago to 22.1%. Downtown's average asking rent of $57.80 per sq. ft. was flat quarter-over-quarter and 2% year-over-year. Renewals were up 85% from the same period last year at 344,000 sq. ft.