In September 2008, Lehman Brothers filed Chapter 11 and achieved the dubious honor of securing the largest bankruptcy in U.S. history to date. It also marked the peak of a financial crisis that would roil global markets and hand a devastating blow to financial hubs like New York City. In the months that followed, available office space in Manhattan (both direct and sublet across classes) reached its zenith of approximately 12.7% in Q4 2009.

We saw steady, measured growth in employment and leasing for an entire decade in the following years. Then came COVID-19. Contrarians hailed it as the death of the city and New York as a whole. A new paradigm emerged as everyone moved to a farm to raise chickens while endlessly working on their laptops over Zoom. It alarmed many within the industry to see statistics that seemingly backed this perception. Current availability rates are a whopping 19.1%. This is undoubtedly a historically high number for Manhattan. Objectively, this 50% increase in the availability rate means we are worse off than we were at the peak of the Great Recession.

In actuality, the truth would surprise most people. Despite this alarming rise in the availability rate, we have almost the same occupied office space today in Q1 2022 as in Q4 2009. That is not a typo. In Q4 2009, we had approximately 381.9 million square feet (msf) of occupancy (net of all available space) across all office product in Manhattan. In Q1 2022, we had about 381.3 msf. That is a variance of +/- 600,000 square feet or .15%. I refer to this as Manhattan office space’s lost decade, and while it has not been ideal, it is far from apocalyptic, as the data will show.

So why is the availability rate so high today? How can we have the same amount of space leased in 2009, when the availability rate was 12.7%, and in 2022, when the same measure is 19.1%?

The answer is deceptively simple and may have been a hunch of industry insiders for years, though without specific quantitative support. Between 2009 and 2022, developers have added a net 33.5 msf of office product to Manhattan. To put it simply, we grew supply by 7.7% without a corresponding increase in demand.

In fact, the steady additions to Manhattan’s office supply through new product deliveries is why, despite steady employment growth and leasing – the city has struggled to dip below the longtime bellwether of 10% total availability in the years since 2009.

Even a rudimentary understanding of economics would dictate that when there is a supply/demand imbalance, pricing should adjust to compensate for the glut of supply. Yet, we have seen in recent weeks that record office pricing is being attained at office properties in Manhattan. Another case of “how could this be?”

The answer here is a little more subtle but just as fundamentally easy to understand. In the ensuing years since 2009, while we added a net 33.5 msf of office space – we added 66.6 msf of top-tier Class A space while removing (through redevelopment or renovation) 33.1 msf of Class B and Class C space. This fancy, new Class A space is coincidentally what most companies have sought for the past decade, though at smaller sizes since 2009. As a result, we have 40.7 msf more occupied Class A space than we did in Q4 2009. That’s right – the demand in the market has stayed the same from a volume perspective, but pricing has shifted up the curve. How are we effectively net-zero msf of occupied square feet if we have had so much new Class A absorption? Class B and Class C office spaces have 41.2 msf of additional vacancy than in 2009. The oft-called “flight to quality” for office tenants was real.

What is there to make from all of this? There is undoubtedly a marked supply/demand imbalance that will correct itself. Advertised lease rates are only part of the story – and while top tier properties are achieving historic high base rent pricing – the significant, dramatic concessions landlords are offering to tenants tell a cloudier picture. There are plenty of second-generation and third-generation spaces in the market, which will face a reckoning in the coming years because there will not be enough tenants in the short-term at large enough sizes to absorb all the availability. All things considered, I was pleasantly surprised about the data that was uncovered. We are closer to where we once were after our last knockdown punch in 2009 than many people realize, and the city has already demonstrated many times that down is not out.

Opinions expressed by the author are their own.