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Weekly Market Report - September 9, 2020

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Got space? Manhattan office availability hits 7-year high

Manhattan’s office real estate market weakened in August as leasing volume was down 21 percent from a year ago while the availability rate hit a seven-year high, according to a monthly market report by Colliers International. “The trend of sublet space coming back into the market, which we saw picking up toward the end of the second quarter and in July, certainly continued in August,” Wallach said. “August 2020 was a very unique August.” One notable example of newly listed sublet space is 103,000 square feet of Zillow subsidiary StreetEasy’s 130,000-square-foot office at 1250 Broadway in NoMad. The Seattle-based proptech giant announced in late July that it would offer 90 percent of its 5,400 employees the option of working from home at least part-time. A Zillow spokesperson, responding to an inquiry about whether its sublease decision was related to its remote-work policy, said, “We’re informally exploring what options we have to right-size our office space in the city. While no decisions have been made, Zillow will continue to have a physical presence in New York City.”


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Nearly 70% of CEOs expect to downsize offices

The pandemic has drastically changed the way CEOs around the globe see the future of work. More than two-thirds said they may reduce their office footprint in the coming years, according to a recent survey. Out of 315 CEOs answering the survey published in KPMG’s “2020 CEO Outlook: Covid-19 Special Edition,” 69 percent checked the “We will be downsizing office space” box. The rapid shift to working from home might have been rocky at the outset of the pandemic, but after months of overseeing their remote workforce, 77 percent of CEOs said they will increase their use of digital collaboration and communication tools, according to the survey conducted in July and early August. “The biggest advantages I think are access to large pools of talent who don’t live around the big cities and aren’t willing to move there,” Zuckerberg told Andrew Ross Sorkin on CNBC’s “Squawk Box.” “And there are a lot of people in the U.S. and in Canada and ultimately around the world that I think we, and other companies that go in this direction, will be able to access.” The CEOs’ sentiment does not bode well for office landlords who have been waiting for the return of their tenants. Jeff Blau, CEO of Related Companies, told Bloomberg that he has been trying to persuade firms to bring people back into the office. KPMG did not release the names of companies whose CEOs responded to the survey, but the firm said these companies have annual revenue of more than $500 million in the sectors of asset management, automotive, banking, consumer and retail, energy, infrastructure, insurance, life sciences, manufacturing, technology, and telecommunications.


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Challenges for SL Green

After two decades of assembling a site and four years of construction, SL Green Realty Corp. is preparing to cut the ribbon next week on One Vanderbilt, the $3 billion office tower soaring above Grand Central Terminal. The timing, coming in the middle of a pandemic, couldn’t be much worse. Office-leasing activity in Manhattan has nosedived. Vacant space is climbing. The work-from-home culture spawned by Covid-19, the disease caused by the new coronavirus, has raised big questions about the future demand for office space even after the all-clear signal sounds. “They’re facing a bit of an uphill battle,” said Steve Sakwa, the head of real-estate research for financial firm Evercore ISI. One Vanderbilt will likely be 72%-leased by the end of 2020, SL Green executives say. Before the pandemic hit, the company had been projecting 82% occupancy by year’s end. “We’re getting deals done,” said Steven Durels, SL Green’s director of leasing. The stakes are high for SL Green, which traditionally has focused on buying, redeveloping and leasing existing properties. One Vanderbilt is, by far, the most ambitious ground-up development the company has ever undertaken.


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Retail Landlords Offer Pandemic Clauses in New Leases

Retail landlords are including pandemic language in new leases, a previously rare feature as tenants seek protection after the first government-mandated coronavirus shutdowns in March complicated their negotiations for rent relief. Because many insurance policies didn’t cover pandemic-related losses, landlords have offered various concessions to attract and retain tenants, including allowing them to defer part of their rent if another shutdown is ordered. Both sides get breathing room: Tenants are able to lower expenses while landlords are still able to collect some money for overhead and their mortgage. “You have to provide the tenant an easy decision. If you make it complicated, you’re not going to get this done,” said Philippe Lanier, principal at EastBanc, a property developer, owner and manager of more than 45 open-air retail properties. Real-estate brokers said landlords have to contend with a glut of stores and social-distancing measures that have forced many retailers to shrink the number of stores. The trend puts more bargaining power in hands of tenants such as restaurants, apparel retailers, grocery stores and discount stores that are still expanding.Questions remain about how long Covid-19 will persist, and some businesses are wary about the recent resurgence in infections in California, Texas and Florida. Landlords have extended more relief to tenants such as small local and regional apparel retailers, salons and restaurants that have felt the most pain. They also said they anticipate more tenant bankruptcies.

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