Manhattan’s Plaza District sees retail leasing surge as office workers return

Two years after the onset of the pandemic, employees are finally making their way back to the office en masse. According to Kastle, which aggregates badge swipe data for office buildings across major metropolitan areas, the 10-city average office occupancy has reached 43.1%, up from 36.8% at the end of February. Office workers provide a major boon to retail in urban city centers, and nowhere is this trend being exemplified better than in New York City.

10-City average office occupancy
 

Although the weather has been stubbornly chilly for these first few days of spring, the retail leasing market is just starting to heat up.

Return of office workers drives deal volume in Midtown

Leasing velocity in Q1 continued to trend upward, with the 72 new leases signed representing a 7.5% increase over Q4. While this total is still down 44.2% from pre-COVID levels, it also represents the highest quarterly deal volume total since the first quarter of 2020. Essential retailers continue to drive this growth, accounting for nearly 53.0% of all new leases signed, a trend that started prior to the onset of the pandemic and continues strong.

New York City quarterly retail deal volume
 

Now that many companies have asked employees to return to the office, the subsequent increases in foot traffic have also been a driver of deal activity, especially in Midtown. The Plaza District, the area encompassing Fifth and Madison Avenues and which is traditionally one of the most expensive corridors in the city, saw a surge in leasing in Q1, accounting for nearly 10% of overall deal volume – a huge jump for an area that has seen almost no new leases since Q1 2020. Retailers including Canali, Paris Saint-Germain, and Swarovski all signed leases in the Plaza District this year, hoping to capitalize on the eventual return of full-time office workers to Midtown.

Availability drops as retailers flex their leverage

The sustained increase in leasing velocity drove down availability, with average prime corridor availability coming in at 24.4% in Q1, down considerably from the peak of 27.9% observed in Q2 2021.

New York City average prime corridor availability
 

Sublease availability also ticked up slightly in Q1; 42.4% of all availabilities were for sublease space, up from 41.9% in Q4 2021. It appears that tenants that opted for the wait-and-see approach over the past two years are now looking to exercise some of their leverage.

Particularly active tenants include luxury retailers, seeking to capitalize on the sizable gains they have seen in the past two years by opening new stores: the first quarter saw retailers such as Breitling, Gucci, and Versace debut new locations in the city. The wide variety of available space, coupled with the observed 11.0% year-over-year decrease in asking rents, created the perfect opportunity for many retailers in Q1, and we expect this flurry of activity to continue in the months to come.