Office vacancies soar to a record with leasing frozen

Office vacancies in Manhattan jumped to a 21st century record as the COVID-19 pandemic froze new rental deals and sublease openings soared.

Last year ended with a 15.1% vacancy rate, up from 11.1% in 2019 and the highest in data going back to 1999, according to a report by Savills, a commercial-property services firm. That left 68.4 million square feet (6.4 million square meters) empty, including 18.6 million square feet of sublease space listed by current tenants looking to downsize.

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New leases in the fourth quarter dropped 64% from a year earlier to 4.6 million square feet. Extension agreements and short-term rentals dominated as tenants delayed major decisions while weighing the impact of remote working and pandemic-induced economic uncertainty, Savills said.

Average asking rents for the highest-quality offices fell 8.6% to $90.42 a square foot, a decline that doesn’t capture concessions such as free months or tenant-improvement allowances, according to Sarah Dreyer, head of Americas research at Savills.

Prices will continue to decline until after vaccines make workers feel safe returning to their offices, increasing demand for space, said Dreyer, whose firm mostly represents tenants.

New York is likely to remain desirable in the long run, she said, because companies will need locations in the high-talent market.