Manhattan Office Rental Market, Fall 2020
Manhattan Office Rental Market, Fall 2020 remains in limbo. The volume of leases being executed for new offices is at its lowest point since 9/11. There is deep uncertainty about whether employees can return to work safely- even after modifications are made to transportation systems, building common areas and private work spaces. Alternatively, the long-term viability of the Work From Home (WFH) strategy remains unknown.
Costar’s Analysis of the Manhattan Office Rental Market
CoStar is the world leader in commercial real estate information and has the most comprehensive database of real estate data throughout the US, Canada, UK, France, Germany and Spain.
Key Costar Manhattan Office Indicators:
- Vacancy Rate: 9.4%
- Market Rent: $58.26* (The rental income that a property would most probably command in the open market. This is the weighted average across all Manhattan office buildings.)
- Deliveries: 2,165,804 SF
- Under Construction: 23,408,262 SF
“Stay-at-home orders issued in March followed by a cautious approach to reopening in June have largely dampened a New York City market that was fresh off two consecutive years of record leasing activity. The pandemic has caused building tours to be canceled, negotiations to be halted, and the postponement of meetings as the face-to-face nature of commercial real estate was ill-equipped to immediately handle social distancing measures.”
“The pandemic is likely to be an accelerant of existing trends rather than a 180-degree change agent. The leasing demand for new, modernized office space has driven the market’s fundamentals over the past decade, and will likely continue as tenants who are still willing to spend the capital on relocating will pursue notably improved spaces. Short-term renewals, with a term of three to five years, will likely be the preferred option for many tenants with landlords happy to avoid the possibility of a future large vacancy during a time of weakened demand. Leasing activity has already sharply declined in 20Q2 as owners adjusted to instituting more technology in their workflow and large corporations handled the pandemic across their global office portfolio. Fundamentals will be affected further if a sharp increase in sublet space were to hit the market due to companies making the difficult decision to ditch their office space altogether by choosing financial survival over in-person collaboration.”
Back-of-the-Envelope Projections
The CRE Brokerage community is projecting Effective Rents* may be reduced 15%-20% from the peak recorded in 2019. This is consistent with the rent adjustments that occurred after 9/11. Notwithstanding, offices buildings that have a minimal amount of vacant units and a stable Tenant roster with long term lease commitments are unlikely to offer significant discounts on their rent.
*Effective Rents: The average rent paid over the term by a tenant adjusted downward for concessions paid for by the landlord (such as free rent, moving expenses, or other allowances), and upward for costs that are the responsibility of the tenant (such as operating expense pass throughs).
Office occupiers that are flexible in regards to their lease term and space design will secure the deepest rental discount with a Sublease. Refer to our recent report Sublease Risk & Rewards in 2020.
Manhattan Office Rentals in the News
Are office landlords turning a corner or rolling over? With Facebook and other large companies growing their footprints while #WFH remains a dominant trend, the terms of office leasing in big cities are changing fast
Got space? Manhattan office availability hits 7-year high Leasing down 21% in August as sublet space dilutes market
Teleworking Could Turn Two Million Renter Households in Home Owners With nearly half of Americans theoretically able to telecommute, Zillow found that almost 2 million American renters living in pricey metro regions could afford starter homes in less expensive parts of the country.
Subleasing, Rent Pressures Spell Trouble for the Office Sector It may take several quarters, and multiple phases of reopening, before firms can fully assess their space needs, Colliers says in a new report.
SL Green opens One Vanderbilt as leaders urge return to office Tenants to move into new Midtown tower later this year
New York City offices are on the comeback trail “I reopened our offices on Sept. 14 for our people to come back on a voluntary basis,”
Remote Work’s Appeal Shows Signs of Fading A study from workplace strategy consulting firm Vocon found that work-from-home fatigue is increasing and productivity is decreasing.
This landlord is calling on his tenants to come back to the city RXR Realty, run by Chief Executive Scott Rechler, owns more than 25 million square feet of office space in the city, but most of it sits empty now, thanks to the pandemic.
About Cogent Realty Advisors, Inc.
Cogent Realty Advisors is an independent and licensed no fee Realtor with 20 years of experience representing businesses that lease NYC office space. We offer solutions for office Tenants seeking stability and value in uncertain times. For information phone Mitchell Waldman at (212) 509-4049.
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