Office leases continue to be an unpredictable category for Manhattan’s commercial landlords, but the “flight to quality” in the sector last year powered a bump in high-dollar deals. There were 190 leases of at least $100 per square foot last year, the figure was a record number of new leases at the price point, beating the 164 leases recorded in 2021. The $100-per-square-foot leases accounted for 6.1 million square feet in the borough, more than doubling the space of premium leases from a year earlier. There were 15 leases for at least $200 per square foot (totaling 280,000 square feet) and two leases at SL Green’s One Vanderbilt that crossed the $300-per-square-foot threshold.
One of those One Vanderbilt leases likely belongs to Canadian-based environmental services company GFL Environmental, which signed a deal in the spring for 9,900 square feet on the property’s highest office floor, directly below the Summit observatory. The asking rent for the space was $322 per square foot. A majority of leases at the premium price point — 62 percent — occurred at buildings that were either new or recently upgraded. The big winners of $100-per-square-foot leases were a who’s who of top office landlords in the city. RFR Realty landed the most deals of the group with 19, although those deals accounted for the least amount of space at 386,000 square feet. Brookfield Properties accounted for 1.6 million square feet with its 16 deals. SL Green had 17 deals for 842,000 square feet, while Related Companies boasted 11 deals for 703,000 square feet.
The Grand Tier, a 30-story high-rise at Broadway and 64th Street in Manhattan, features trappings typical of posh digs on the Upper West Side, including Central Park views and a lobby ornamented in French tapestry, silver travertine and Italian ironwork. The 20-year-old tower also boasts a singular feature: In the basement, an array of pipes and compressors the size of six parking spaces scrubs exhaust from the building’s two natural gas boilers, separating carbon dioxide from nitrogen and oxygen, liquefying it and storing it in metal tanks. The city’s only residential carbon-capture rig, installed last year, reflects a citywide environmental challenge.
Local Law 97, a pioneering climate mandate passed in 2019, aims to cut emissions from New York’s largest buildings 40% by 2030 and 80% by 2050. Next year the city will begin penalizing owners of inefficient commercial and residential property, with fines growing considerably in 2030. New York’s density makes it an outlier among US cities: The largest share of its greenhouse emissions comes from buildings, not cars or power plants. The big bet behind the law, which inspired similar legislation in Boston and Washington, DC, is that New York’s wealth and entrepreneurial energy will turn the city into a national proving ground for climate tech. Although LL97 doesn’t explicitly mention carbon capture, industry insiders say it has provisions that might make the technology count toward emissions reduction mandates. To date, most carbon capture has focused on large-scale plants meant to vacuum the gas from flue emissions at power plants or from the atmosphere itself, but these use so much energy that the effort blunts any gains from removing carbon. CarbonQuest says its system is more efficient because it operates on a smaller scale at the source. Glenwood, which is planning to expand the carbon-capture pilot to five additional locations, has been tackling emissions on multiple fronts: swapping out electric motors, installing steam system traps and updating boilers, roofs and insulation.
Ultimately, full building electrification—backed by a grid powered with renewable energy—is the solution, says Joshua Landon, Glenwood’s vice president of management. But he’s looking for technology that can come online quicker. The situation, he says, is akin to a fire truck approaching a blaze with less than a full tank of water; would you turn it away? Even as deadlines for compliance approach, questions about LL97 remain. It’s unclear, for instance, whether the law will embrace Renewable Energy Credits, which owners can buy as an alternative to building upgrades. It’s possible that a market for trading credits will emerge, giving large property owners a way to offset fines by investing in solar and battery storage in others’ buildings.
Landlords have been longing for employees to head back to office buildings in greater numbers. But the national return rate has crept up slowly. For the past three months, it has plateaued at about half of what it was before the pandemic. Now, a possible recession is making the outlook for 2023 even gloomier. New business searches for new office space, after rebounding in 2021, fell in 2022 to 44% of what they were in 2018 and 2019. Companies are cutting back on office space because they are in a “reduce expense mode,” That prospect may make it challenging for building owners to meet their mortgage obligations, especially with the sharp increase in interest rates.
The office industry didn’t suffer during the early part of the pandemic because office leases tend to be for 10 to 15 years. Even though buildings were largely empty in 2020, most tenants continued to pay rent. But cash flow has declined as lease terms matured and corporate tenants bargained for lower rents or reduced their space. The office vacancy rate was 12.3% at the end of September, up from 9.2% at the end of 2019. About 211.8 million square feet of sublease space is now on the market, compared with 108.8 million square feet at the end of 2019, the data firm said. The amount of sublease space currently available is the highest amount ever recorded for major office markets, including during the 2008 financial crisis. Part of the drag on the office sector has come from new hybrid and remote workplace strategies. Many of these plans call for workers to visit offices in the middle of the week and work remotely on Mondays and Fridays.
Since September, the average weekly return-to-office rate has plateaued just below 50% in the 10 major metro areas. Even in cities where politicians have urged workers to return to their office, some local officials may be bowing to the new reality of remote work habits. In New York, for instance, the Metropolitan Transportation Authority said in December that it would start reducing subway service on Mondays and Fridays, the two least popular days for heading to the office. But even as the return to office increases gradually, companies worried about the economy are slashing jobs.
Banking giant Goldman Sachs, which as recently as November predicted the U.S. would narrowly elude a recession, is poised to cut nearly 10% of its workforce in the next month, citing slowing economic conditions for the pullback. Heading into the new year, the firm plans to eliminate up to 4,000 jobs, or 8% of its workforce, as part of its cost-saving strategy, Bloomberg reported, citing unnamed sources. Like other industries that have begun tightening their belts, the amount of space the company needs might be called into question as its workforce shrinks. Although the company is expected to bring in $48B in revenue this year, marking its second-best annual total behind only last year, the firm has had expensive ventures, including into consumer banking and new technology expenses.
Goldman has 26 U.S. offices in markets across the country, according to its website. In June, the firm leased 365K SF at One Phipps Plaza in Atlanta. Goldman owns its 2.1M SF headquarters at 200 West St. in New York, according to CommercialCafe. Goldman Sachs had been one of the more optimistic financial service firms, in November pegging the United States' chances of entering a recession over the ensuing 12 months at 35%. Earlier this month, Goldman announced that it was raising money for a more than $7B real estate debt fund, which can typically charge higher margins, making a good return on better-quality assets as economic uncertainty persists.