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Weekly Market Report - March 12, 2024


The city is nearing a dire office milestone, despite positive return-to-office trends

New York City is approaching two milestones in its return-to-office movement, with office attendance rebounding to nearly 80% of its pre-pandemic number. The city is among the top-performing markets, with workplace visitations at 77.5 percent of 2019, and foot traffic jumping by over 30 percent compared to 2022. However, the rest of the country is still far from where New York has performed. Office attendance is down about 33 percent compared to pre-pandemic levels on Tuesdays, Wednesdays, and Thursdays, and almost 50% on Mondays and Fridays. The availability rate in Manhattan hit a new record high in February, with 100 million square feet of available office space. Despite the progress, there is skepticism that New York's office market will improve anytime soon.


Financial pressure is increasing on the Midtown tower housing Rupert Murdoch's media empire, 1211 Sixth Ave., which is home to Fox News, the Wall Street Journal, and the New York Post. The $1 billion mortgage due next year could be difficult to refinance for the owner, a Canadian pension fund. Fitch Ratings has lowered its outlooks for the mortgage to "negative" due to concerns related to the loan's refinanceability given the upcoming August 2025 maturity and the size of the outstanding debt amount. The warning comes nearly 18 months before 1211 Sixth's loan is due, highlighting the hostile markets for office towers with long-term tenants.

Fox Corp. and News Corp. lease about 65% of the building's 2 million square feet through 2042. The landlord is planning several upgrades for the 45-story tower, including lobby renovations and improvements to the public outdoor space. The building's cash flow fell last year to $85 million from $92 million, in part because Axis Reinsurance moved out of more than 100,000 square feet of space. The building's fixed-rate $1 billion mortgage was originated in 2015 and carries an interest rate of 4.15%.


WeWork, a coworking company, has been undergoing bankruptcy proceedings, leading to a trend of move-outs since its failed IPO in 2019. Since 2016, WeWork has vacated 8.9 million square feet of office space across the US, with 3 million re-leased, often to competitors. In 2023, WeWork left behind over 3 million square feet, and new tenants took over 914 thousand square feet. The company began renegotiating and rejecting leases around the time it declared bankruptcy in November, aiming to reduce lease obligations and costs. Of the 90 tenants who have signed leases for WeWork's former locations, 902 thousand square feet have been taken over by Industrious, Studio by Tishman Speyer, and IWG. Other tenants that have backfilled WeWork space include Sony Pictures, Palantir, and Boeing. Despite this, nearly two-thirds of the space WeWork has vacated is empty.


“Property construction still has a long way to fall,” report says

China's real estate sector is facing a slump that could worsen due to a slowdown in construction, according to a Capital Economics study. The government has attempted to support the sector with investment and pressure on developers, but this strategy has not been successful. The country's largest developer, Evergrande, was ordered to liquidate in January, and Country Garden faces a $187 billion debt bill. Property sales and project starts have also decreased. The government is considering socialist policies and an insurance system for developers to access pre-sales funds. However, the decline in property construction is expected to continue, and the situation is expected to worsen.


Bank deposits went from $83B to $77B in a few weeks

New York Community Bank (NYCB) reported a 7 percent decline in deposits, with $77.2 billion, compared to $83 billion in February. This follows the withdrawal of money by panicked customers, which caused financial turmoil for several banks last spring. The bank's stock plunged 47% on Wednesday, prompting the New York Stock Exchange to halt trading. NYCB announced a $1 billion equity infusion from institutional investors, including Liberty Strategic Capital, which led to a spike in the stock but slipped again 20 minutes later. The bank also appointed former Comptroller of the Currency Joseph Otting as CEO, replacing Thomas Cangemi with Alessandro DiNello. NYCB faces challenges in the submarket due to rent-stabilized loans, which are difficult to navigate. Despite the chaos, the stock showed signs of life in the first hour of trading on Thursday.


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