November Economic Snapshot: New York City Commercial Office Forecast 2025
By Kristina Pecorelli, Assistant Vice President, Economic Research & Analysis
Firms in the city’s flourishing tech, creative, and innovation sectors are looking for flexible, creative, wired space.
And they are increasingly looking to boroughs outside of Manhattan to find it.
This month’s Economic Snapshot looks at commercial office development in New York City. The activation of commercial real estate is a critical means toward growing the middle class and advancing 21st century jobs. NYCEDC President Maria Torres-Springer recently announced at the Crain’s Business Breakfast Forum that based on projected job growth over the next 10 years, the city will need up to 60 million additional square feet of office space to keep up with demand.
Vacancy rates for commercial office space in NYC’s central business districts often fall below the 8% “natural vacancy rate” – or what the Independent Budget Office defines as the “point at which supply and demand are balanced and lease rates are stable.” In Q3 2015, for example, direct office vacancy rates in Midtown South and Brooklyn were 4.7% and 5.7%, respectively – among the lowest in the nation.
Though Manhattan remains home to 85% of the city’s total office inventory, Queens has experienced the lowest vacancy rates among the five boroughs thus far in 2015 (4.1%), while Brooklyn has witnessed the greatest increase in direct rent rates over the last decade, up 60% (see Figure I below).
Despite high demand, Brooklyn and Queens together comprise just 12% of total office space and 8% of space currently under construction in NYC in 2015 (See Figure II).
That said, the geospatial distribution of new commercial space varies significantly by year. Boroughs outside of Manhattan are currently home to nearly two thirds of the commercial office space that has come online this year, up from just 5% in 2013.
The addition of 60 million square feet of office space by 2025 would constitute the largest and most rapid pace of commercial office development in NYC in nearly two generations.
The activation of commercial space is core to NYCEDC’s mandate. We will use every tool at our disposal to meet that demand: working with the private sector, leveraging City-owned assets, investing City capital, and working with our colleagues at other agencies to make sure that commercial space is being considered in new developments.
Already, planned new space at Hudson Yards and the World Trade Center, together with new and proposed construction in East Midtown, put NYC a third of the way toward generating this capacity. Most of the growth, however, is expected to come from emerging business districts outside of Manhattan, notably in Jamaica, Queens, Lower Concourse in the Bronx, and Staten Island’s North Shore, as well as in more established districts such as Downtown Brooklyn and Western Queens. Nascent commercial corridors could account for 40% of new commercial growth over the next decade.
Other Snapshot Highlights
- The city’s unemployment rate fell to 4.8% in October 2015 – the lowest in more than 8 years.
- Construction began on 47,530 residential units in the twelve months ending September 2015, nearly double the number from the same period in 2014.
- In October 2015, the Manhattan Class A direct vacancy rate increased to 8.6% from 8.3% one month prior, while the average rental rate increased slightly to $78 PSF.
Read the November 2015 Economic Snapshot to learn more about historical and projected trends in the NYC commercial real estate market.
For all other economic reports, visit our economic data archive on the Economic Research & Analysis page.