Many thought the pandemic left much of the city's commercial office space vacant. But it turns out that's not exactly the case. At One World Trade, office space is becoming harder to come by. "You see it in the residential market. Demand is at an all-time high. We don't think it'll be too long before we see that renaissance in the commercial market as well," When offices closed during the pandemic tax revenues were down.
The Real Estate Board of New York says from November to December of 2020, in just those two months, the city lost $250 million in taxes. Decoster says storefronts in office-dependent areas had vacancies more than double to nearly 30 percent, but as the city emerges from the other side of the pandemic things are changing. Getting them back requires making the workplace a more attractive option than the couch. Commercial space in older buildings might not be in high demand, but there could be another use for them. They could be converted into homes.
In December, a REBNY study found 10 percent of Midtown's older office spaces could be turned into 14,000 new apartments. "It may be that the highest value for some buildings is residential, but certainly office is definitely in high demand,” Buildings lacking competition are part of the reason why office vacancy rates are still high. Right now, that number is at 14.7 percent in Manhattan. In a normal market it would be closer to 10 percent. Either way, the city is far from being in crisis.
We don’t agree with this article and believe that the B and C buildings are in a crisis.
U.S. office sales hit $18.9 billion in the first quarter, with the national average price at $280 per square foot. Last year, there was about $22 billion in investment sales in the same period. More than $7.5 billion of this year’s total came in six leading markets, each of which logged more than $1 billion in sales so far this year: Seattle, Dallas, New Jersey, Houston, the San Francisco Bay Area and Manhattan. Manhattan was far and away the most expensive city for investment sales, averaging $921 per square foot in the first quarter.
The national office vacancy rate hovered at 15.9 percent across the largest 50 U.S. markets, which was an increase of 30 basis points compared with the same period last year. Vacancies in San Francisco grew from a pre-pandemic 7.3 percent to 17.3 percent in March 2022. Boston’s 10.5 percent, Portland, Ore.’s 12.3 percent and Miami’s 12.8 percent vacancy rates were the tightest of the top 50 cities. The shift to remote and hybrid work also led to a smaller pipeline of new supply last year. In 2019, crews started building 86.4 million square feet of new office space. That figure dropped to 58.4 million in 2020 and inched up to 63.1 million in 2021. Of all the projects under construction across the country, 93 percent will be at least Class A space.
If this trend continues, many owners of Class B and C buildings may feel the squeeze and look for conversion opportunities.
A pandemic shakeup in 2020 led to a surge in store closures, coupled with dozens retailers filing for bankruptcy, which emptied out shopping malls and left vacancies scattered along the streets major markets including New York City. The aftermath, though, was a temporary relief from closures, as companies took the chance in 2020 to quickly slim down their store counts when consumers were holed up at home. In fact, in 2021, retailers reported net store openings, marking a sudden reversal from years of net declines.
Companies seized the opportunity to take advantage of cheap rents and an eagerness among Americans to get out and shop again. While analysts at UBS see more pain ahead, it’s not as many closures as the investment bank had initially projected about a year ago. UBS is now projecting between 40,000 to 50,000 retail stores in the United States closing over the next five years, down from the 80,000 closures it previously forecasted. That’s out of about 880,000 total retail stores that the firm tracks nationwide, excluding gas stations. This estimate assumes that U.S. retail sales grow about 4% annually, moving forward, and that e-commerce sales as a percentage of total retail sales grows to 25% by 2026, from 18% in 2021, UBS sees the most closures shaking out among clothing and accessories retailers, consumer electronics businesses and home furnishing chains, or about 23,500 cumulatively within these categories by 2026.
So far this year, retailers’ plans to open new locations are far outpacing their plans to shutter shops. U.S. retailers having announced just 1,385 store closures, compared with a whopping 3,694 openings, as of April 1. The store growth is being driven by dollar chains and discount stores, like Dollar General and TJX – and also by a wave of so-called digitally native companies that started on the internet but are now seeking acquiring new customers via bricks and mortar. UBS, which releases these closely followed, deep-dive store closure reports every few years, said that the number of shopping centers in the U.S. reached a peak of 115,000 last year, up from 90,000 in 2000, despite a continued acceleration in e-commerce.
The National Alliance on Mental Illness of New York City signed an 18-year sublease with the HIV/AIDs nonprofit Gay Men’s Health Crisis (GMHC) for 14,000 square feet across part of the eighth floor of the 21-story George Comfort & Sons building. Asking rent was $35 per square foot. NAMI-NYC currently leases 4,800 square feet at 505 Eighth Avenue, but Kaplansky said it needed more room because of growing demand for its programs, in part thanks to the pandemic, which has increased rates of depression and anxiety globally.
The nonprofit offers classes, support groups and other resources to 30,000 people affected by a mental illness each year, and the larger space will let the organization resume in-person programming when it moves in the summer. GMHC shrunk its 110,000-square-foot headquarters at the building to let NAMI-NYC take part of the eighth floor, Kaplansky said. The building, between Eighth and Ninth avenues, is also home to digital printing facility Underground Visuals.
Tiffany & Co. agreed to a 10-year extension for its office at 200 Fifth Avenue, the New York Post reported. The deal extends the lease until 2036 but came with a sizable cut to Tiffany’s footprint at the building. Tiffany has been occupying roughly 400,000 square feet at the office building. Following the lease extension, it will have only 287,000 square feet, lopping off almost a third of its footprint. Terms of the lease weren’t disclosed, although rent on the extension is reportedly in the triple digits, accompanied by “nominal” concessions.
David Levinson and David Berkey represented L&L in-house, while Savills’ Greg Taubin and Matthew Barlow represented Tiffany. Tiffany’s reduction could prove to be an opportunity for the landlord, which recently completed $135 million in capital upgrades. There will soon be more than 57,000 square feet available, the first availability at the building since the upgrades were completed. In 2018, Tiffany announced a major renovation and expansion plan for its flagship store at the Trump Organization’s 6 East 57th Street, next door to Trump Tower.
The $250 million project was expected to wrap up last year but isn’t yet completed. It’s not clear when the project will complete, but the three-story addition at the top of the building is visible.