Office Leasing in New York City, 3rd Quarter 2021 Report
Office Leasing in New York City, 3rd Quarter 2021 Report. For the 70.9% of New Yorkers that are vaccinated, it is now safe to return to work and imperative for the city’s economy that they do so. Unfortunately, with the identification of the Delta variant, companies that were demanding a return to the office on September 1, 2021, have now postponed this deadline. As a result, many companies are continuing to operate remotely and office usage in NYC remains among the lowest in the US.
The work-from-home (WFH) model is preferred by many employees and has proven to be cost-effective and reasonably productive, although less so than working in person at an office. In keeping with this some corporations are extending their WFH policies or implementing hybrid schedules.
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New York City Office Leasing
With so much office space underutilized, many companies are reluctant to rent new space and leasing activity has declined substantially over the past 12-months. Recent large new leases have come from the tech industry (Facebook, Apple, TikTok) which are increasing their headcounts and can afford new offices that remain partially occupied. Much of the other leasing activity were renewals where companies (Blackstone, Stroock, Allen & Overy) received favorable terms to sign extensions.
Costar’s Analysis
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: 11.6% ↓
- Market Rent: $56.71* ↑ (The income that a property would most probably command in the open market. This is the weighted average across all Manhattan office buildings.)
- 12 Month Rent Growth: -2.7%
- Total Rentable Building Area: 960,244,795 SF
- Under Construction: 22,781,474
NYC Office Leasing Projections
The commercial real estate brokerage community is projecting that 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. More substantial rent discounts may occur in lower quality buildings and those with higher vacancy.
*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 through).
In the current Tenant-friendly environment Asking Rents are being discounted and Tenant Incentives like Rent Abatements and Cash Contributions for construction are increasing. Many Landlords are offering more Flexible Terms with shorter duration leases.
Office Tenants that are flexible regarding their lease term and space design can secure the deepest rental discount with a Sublease. Read our recent report, Sublease Risk & Rewards in 2020.
Trophy and Class A buildings that currently have a minimal amount of vacancy and a stable Tenant roster are unlikely to offer significant reductions in rent.
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Office Developers Remain Optimistic
There are more than 22 million square feet of office development projects under construction in NYC. Additionally, well capitalized owners of existing buildings have completed expensive renovations to attract Tenants. Although vacancy levels will be elevated in the coming years, developers are optimistic that future leasing activity will occur in the newest and highest quality buildings.
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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 leasing solutions for office Tenants seeking stability and value in uncertain times. For information phone Mitchell Waldman at (212) 509-4049.
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