Real Estate

An office vacancy crisis is haunting NYC — but owners remain bullish

New York City is open — maybe too open.

At least 7 million square feet of space are up for grabs in a half-dozen new or renovated Manhattan office towers in the midst of the city’s worst-ever crisis.

Seven million more square feet could be on tap in proposed buildings yet to rise. The additional space is either online now or coming to market within 18 months.

Meanwhile, the pandemic’s work-from-home phenomenon has CEOs warning that they’ll reduce their office footprints by up to 40 percent.

Effective rents continue to fall as Manhattan’s availability rate hits 16 percent due in part to a sublease flood.

JPMorgan Chase CEO Jamie Dimon sent tremors through the market this month when he said the bank will reduce its commercial footprint even as it builds a new, 2.5 million-square-foot headquarters tower at 270 Park Ave.

“For every 100 employees, we may need seats for only 60 on average,” Dimon said. JPMorgan Chase is the city’s largest single office-space user.

So the city’s commercial landlords and developers are heading into a brick wall, right?

An exterior of Tishman Speyer’s Spiral
If you’re interested, there’s availability at Tishman Speyer’s Spiral.
Tishman Speyer

Don’t write them off just yet.

Insiders said there are strong reasons to believe that we’ll one day look back on today’s situation as a temporary, if terrifying, aberration.

It isn’t simply that 14 million additional square feet, if all the new projects go forward, would still account for a minute percentage of Manhattan’s 526 million-square-foot inventory.

Mega-developer Douglas Durst shrugged off any angst,

An exterior of Five Times Square.
Five Times Square is looking for friends.
© Frederick Charles

“We’ve been here before,” he told The Post. “People projected the end of office market. Some people were giving up space, but they came back.”

But isn’t today’s COVID-19 crisis different from previous ones?

“No, not at all,” he added. “Each crisis we went through was different, but they all had the formula of, ‘Well, we don’t need so much space.’ But in the end the market comes back.”

Tenant interest has rebounded, he said:

“We’re actively renting. We have leases out on 150,000 square feet and we’re in negotiations on 450,000 more.”

Real estate moguls tend to be wildly optimistic, so we sought out an expert who’s neither a landlord or a broker: Real Capital Analytics senior VP Jim Costello.

“The tech firms are signaling that they want people back in their offices and collaborating,” Costello said. “Remote work is great for certain highly paid managers. But for the firms themselves, there is value in getting the rank and file together in one place and younger workers will benefit from in-person mentoring from senior team members.”

Powerhouse CBRE dealmaker Robert Alexander, who heads a leasing team that includes his son, Ryan Alexander, and Taylor Callahan, boldly predicted that WFH will account for a mere 5 to ten percent of the white-collar workforce once the pandemic is under control — a far cry from estimates of 30 to 50 percent that have been tossed around.

Ryan Alexander said, “despite [negative] rumors and chatter, the market really picked up the last few months in terms of tenants having conversations with landlords. We have deals out with tenants that will bring One Vanderbilt to well over 80 percent leased,” he said of the SL Green skyscraper that’s now about 70 percent spoken for.

A side by side of 50 Hudson Yards and 111 Wall St.
Tale of two cities: 50 Hudson Yards is 80% leased (left), while huge availabilities loom at 111 Wall St. (right).
Related-Oxford; David McGlynn

Callahan said that new towers can be more fully spoken for than initial data shows. For example, while 50 Hudson Yards is theoretically 80 percent leased, Black Rock and Facebook have expansion options and “it ends up 85 percent or more leased.”

One reason: “How can you mentor a whole generation remotely?” Bob Alexander mused.

“I talk to a lot of senior executives,” he said. “Everybody wants their people back by summer. There’s no excuse with the vaccines. If people won’t get vaccinated, okay — in October we’ll find somebody who did.”

There’s lots at stake both for newly minted towers and soon-to-be-vacant older ones undergoing major capital upgrades.

Exterior of Three Times Square.
There’s lots of room to grow at Rudin’s 3 Times Square.
FXCollaborative

Expensive space remains up for grabs, in varying amounts, at Brookfield’s Two Manhattan West and 660 Fifth Ave., Tishman Speyer’s Spiral, Related’s 50 Hudson Yards, Olayan Group’s  550 Madison Ave., RXR’s  Five Times Square and Rudin’s Three Times Square, L&L Holding’s 425 Park Ave.

Huge availabilities also loom downtown at Nos. 60, 85 and 111 Wall St. Smaller blocks exist at numerous, attractive new “boutique” office properties such as Erbo Properties and Higher Ground Development’s The Frame in West Chelsea, an adaptive-reuse of a former warehouse built in 1915.

The new floors need to find takers at perhaps the most perilous time in the city’s economic history.

A side by side of 550 Madison and 425 Park Ave.
Space at Olayan Group’s 550 Madison (left) and L&L Holding’s 425 Park Ave. (right) is up for grabs.
L&L Holding; Gensler

“There’s a lot of space that’s come on the market,” acknowledged JLL regional president Peter Riguardi. “There will be a lot of leasing activity as people start to return to work and start to address lease expirations, but the marketplace needs positive absorption — people taking more space than they’re in to properly indicate a turnaround. That means we’re going to need real job growth.”

Where will the jobs come from?

“When the Feds pump $4 trillion into the economy, the markets go through the roof,” Alexander said. “Every major bank will need to expand, and tech — especially fintech — will follow suit.”

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