Manhattan office leasing is slowly but surely coming back. During midsummer, 2.4 million square feet was signed; however, in July of last year over 5.17 million square feet was signed for. Renewals and short-term leases represent 71% of total activity. Availability reached 11%, the highest since 2014. Subleases increased this month and accounts for 22% of the Manhattan office market. Landlords have held steady on rent prices, and in Midtown South repricing has begun with a 1% drop since June.
More and more companies are opting for short-term renewals to avoid dealing with the current market after Covid-19. During January and February, only 35% of lease renewals were short-term. Between March and June, that number jumped to 62% with most companies opting for deals between one to three years. Brokers are calling this a “bridge strategy” where tenants will have more time to make longer-term plans. Short-term renewals are a win-win for both sides in this current market; landlords are happy to keep their spaces filled, and tenants are happy to avoid moving during this time. As the threat of the virus recedes, short-terms leases will slow down.
City Council member Keith Powers introduced a bill last week to give commercial properties a break during Covid-19. It would temporarily repeal the commercial rent tax for businesses for the remainder of the Covid-19 state of emergency. The 3.9% tax is imposed on base rent for commercial properties south of 96th Street in Manhattan. This bill would affect around 5,500 business with an annual base rent of less than $1 million. Powers says, “relieving payment of the commercial rent tax at this time is a tangible benefit for businesses.” While it will help some, it will also hurt the city’s tax revenues, which is why lawmakers have been struggling for decades on whether to eliminate this tax or not.
In Q2 of 2020, Empire State Reality Trust had a net loss of $19.6 million, which is down from $18.9 million in net income last year. ESRT announced a series of cost-cutting measures, including salary cuts and a 12 percent cut in general and administrative expenses to improve its balance sheet. The company’s portfolio of 10.1 million-square-foot space expands throughout New York City, Westchester and Connecticut. The company’s total revenue for Q2 was $141 million, which is down 20% from $176 million last year. Eighty four percent of rent was collected in Q2, and as of July 24th, monthly collection has reached 90%.
When IBM started looking for a new office in Manhattan, Covid-19 wasn’t a thing. Now, even with the pandemic still happening, IBM isn’t letting that stop them from finding a new space. Two months ago, IBM ditched a WeWork office. The company has narrowed the search down to six buildings, including One Madison Avenue and it would possibly anchor a redevelopment. IBM is looking for between 450,000 and 500,000 square feet to consolidate other Manhattan offices. This company’s move would bring back some confidence in the office sector. Only 8.3 million square feet has been leased this year in Manhattan, down from 15 million at this point last year.
Bryant Park Hotel on West 40th Street is now going to be offered as “boutique” office space, including the ground floor restaurant Koi and underground lounge Celon. There is a total of 122,000 square feet on 25 floors, and right now there has been no mention of asking rents. Brokers are saying the owners of the building hope for $85-$125 per square foot. Covid-19 has been a huge challenge for hotel owner’s, and they have been devising new strategies for their properties. The Omni Berkshire on Madison Avenue will also likely be converted to offices. The Bryant Park Hotel has been a staple since it opened in 1924.
For the first half of 2020, Brooklyn’s commercial real estate market has had it rough. The total volume dollar dropped 19% to approximately $2.2 billion, which was compared to the first half of last year. From Q1 2020 t0 Q2 2020, the dollar volume dropped by 62%. Multifamily properties dollar volume fell by 44%, and industrial properties dropped by 60%. Brooklyn’s mixed-use properties and development sites increased by 106% because of Urban Edge’s $165 million purchase of Midwood’s Kingwood shopping portfolio. Deals started coming in again in May and June, which gave people hope that this will kick the third quarter into high gear.