top of page


Weekly Market Report - July 8, 2022


Forbes wrote: The commercial real estate industry has undergone a rocky road over the past two years, as pre-Covid-19 predictions have been upended due to the unforeseen nature of the pandemic. But as the world begins its shift toward post-pandemic life, I believe that commercial real estate is on track for a serious rebound this year. While not every area of commercial real estate is set to see an upswing, there are a few predictions that are safe to make based on trends in the market. Here are a few of my commercial real estate predictions for 2022: Commercial Real Estate Will Bounce Back.

First and foremost, the biggest prediction for 2022 is the recovery of the commercial real estate industry. While it has taken a beating during Covid-19 (and the Omicron variant does present a hurdle toward full recovery), sound fiscal policy could help the industry recover. Monetary policy could also ease some of the long-term inflation pressures as commercial real estate values rise. The demand for real estate will be high, though the areas in which people are investing might look a little different than in previous years. Office Real Estate Won’t Be Out Of The Woods Yet.

The one part of commercial real estate that still has some trouble ahead is office real estate. While it won’t be terrible, demand won’t be nearly what it was in previous years as companies continue to hold off on returning to the office. As working from home both full-time and part-time becomes more of the norm, office space utilization will most likely be on a downward trend. The Supply Chain Will Be Retooled.

The supply chain has suffered quite a blow during the Covid-19 pandemic, which will require some retooling over the next year. Because the space near seaports is not widely available, many developers will have to invest in commercial real estate inland. In order to account for rising transportation costs, manufacturers will most likely have to add distribution facilities in closer proximity to manufacturing facilities. Although nothing is set in stone for the future of commercial real estate, it’s safe to say that the economy behind commercial real estate is here to stay and that these predictions are well on their way to becoming reality.


An index tracking the shares of publicly traded office owners was down 29% over the first two quarters, compared with a 21% decline by the S&P 500 stock index. Office stocks plunged in June, as weak economic indicators and persistent inflation made a recession appear more likely. Office leasing tends to be highly dependent on the health of the economy. During recessions, companies often cut costs by laying off workers, meaning they need less space. Rising interest rates also hurt office landlords because they tend to push down property values. The last three recessions all led to a drop in office occupancy. Thanks to more office supply and companies squeezing more employees into smaller spaces, the share of U.S. office space leased today is far lower than it was at the start of the 2001 recession or the subprime crisis. While office demand continues to be strong in many Sunbelt cities, vacancy rates in cities like New York, San Francisco and Chicago rose during the pandemic, in some cases to the highest levels in decades.

At the start of the year, landlords were hoping that the second half of 2022 would see a surge in leasing as more companies sent their employees back to the office. How bad things get for the office sector depends on the severity of the downturn. During and after the 2020 recession, the national office vacancy rate barely fell because the drop in output was sharp but brief. But if rising interest rates were to lead to mass layoffs and corporate defaults, vacancy rates could rise substantially. The combination of weak demand and rising interest rates is pushing down prices. Green Street estimates that office-building values have fallen by 8% this year. While some modern buildings are still getting high prices, investors and lenders say they are increasingly reluctant to spend big on aging office properties. Despite these headwinds, the share of office mortgages that are delinquent remains low. Landlords generally hold less debt than before the 2008 recession, providing a valuable buffer during a downturn. Still, lenders and analysts say they expect more defaults.


Manhattan office leasing volume dropped by 3.9%. “Additionally, at 7.32 million square feet, Q2 2022 demand was 10.1% below Manhattan’s five-year rolling average (8.14 million square feet) and 10.6% below the ten-year average (8.19 million square feet).” The good news is that the 2022 second quarter volume was 60.8% higher than the 4.55 million square feet in the same period of 2021. The comparison of the first six months is also favorable in a year-over-year measure, with 14.95 million square feet, a 62.4% increase over 9.11 million square feet. “If leasing volume were to continue at the same pace for the remainder of the year, 2022’s full-year leasing volume would surpass 2021’s full-year total (24.96 million square feet) by 19.8%,” the report read.

Financial services, insurance, and real estate were the biggest contributor to current volume at 47% of the second quarter total. In that sector, about 3% of the leases were for flex space. Technology, advertising, media, and information services came in second at 15%. What seems to be happening is a tradeoff: higher utilization, and so less overall need for new space as reabsorption occurs. There’s also another factor with an effect: higher costs. Now, the longest consecutive streak since 2019 isn’t necessarily such a big statement. The pandemic ran rough over business and New York was one of the hardest hit areas. Businesses shut down, big companies had as many people work from home as was possible.

Even in 2021, things were moving closer toward normal but hardly typical. A year-over-year comparison will mislead to at least some extent. Also, sublet space has increased by 71.9% since March 2020 and sublet availability grew by 1.06 million square feet, bringing it to a total of 20.47 million square feet. Not quite the pandemic high of 21.16 million square feet in July 2021, but plenty large.


A real estate data company found that the most heavily taxed office tower in America was the 1968 General Motors Building at 767 Fifth Avenue, which has an annual tax bill of $75.3 million. Next up is the MetLife Building at 200 Park Avenue, which was constructed in 1963 and paid $60.4 million in taxes last year, according to the report. A trio of Rockefeller Center office buildings —630 Fifth Avenue, 50 Rockefeller Plaza and 1270 Avenue of the Americas — rank third on the list with one shared tax lot and a $53.8 million tax bill last year. The top ten highest-paying properties also include The Solow Building at 9 West 57th Street, 1221 and 1345 Avenue of the Americas, Google’s offices at 111 Eighth Avenue and One Vanderbilt.

Newer commercial properties rarely make the list because they tend to get more favorable tax treatment than their predecessors constructed in the early- to mid-20th century. The most heavily taxed office property outside of New York City is the Willis Tower in Chicago, ranking 12th on the list with a bill of $43 million. Beyond New York City, the office towers with the biggest tax bills are mostly in Chicago, along with Facebook’s Menlo Park headquarters and two D.C. properties, Constitution Center and Midtown Center.


bottom of page