People in the commercial real estate world has said that Covid-19 has rushed the recurring decline of office space with anchored investment properties taking the hardest hit of all. Daily News building fell apart; Vornado may cut its dividend by 20% in Q3; and Paramount is expected to lose 10% of its operating funds over the next 12 months. Putting more people in a smaller space has posed obstacles for commercial developers, and this pandemic is causing companies to rethink how they use their office space by creating larger open spaces for fewer people. In Q2, Manhattan’s office leasing activity totaled 3.18 million square feet, which is about 100% down from last quarter and 72% year-over-year. Analysts say Manhattan office rents will decline between five and 20% over the next year or two.
Multiple of the city’s top office landlords are investing in improving their airflow systems at the risk of coronavirus circulating within a building. Rudin Management, which owns about 10 million square feet of office space, has had an “in-house system that tracks fresh-air intake, carbon dioxide levels and humidity within the buildings.” Just last week, the company released an app where its tenants can check the air themselves. Public health experts say there is evidence emerging that the virus can spread through smaller air droplets that stay in the air longer than usual. People close to the issue recommend HEPA filters, which are believed to be most effective. Most buildings can use MERV 13 filters, which stands for minimum efficiency reporting value.
In late June, the city went along with phase two, which included commercial real estate. The coronavirus’s toll on the market has only begun to show after months of being shut down. A few issues include tenants and landlords going head-to-head for rent relieve, property owners falling behind on their mortgages, and property prices falling. A lot of corporate tenants are deconstructing their leases and trying to renegotiate for less rent, less space, or to even terminate their lease. Some tenants are making the payments, and several landlords are offering free rent to companies willing to sign 10-year leases. The Dow Jones US Real Estate Index was down 14.7% in the beginning of July. Green Street’s latest commercial property price index shows prices have dropped 11%, while some tenants are bracing for a minimum 15% fall in property prices.