Is this the end of expensive office space in New York??

David Goldsmith

All Powerful Moderator
Staff member
With an estimated 20% residential vacancy rate in Manhattan currently, I don't see how more residential conversions is a solution. And it would require billions in investment only to collect less $/sf than the office tenants who left.

Midtown Is Reeling. Should Its Offices Become Apartments?​

The pandemic has created a crisis in New York City’s commercial real estate industry. Some leaders think it’s time to reimagine the city’s business districts

Nearly 14 percent of office space in Midtown Manhattan is vacant, the highest rate in 11 years.

The pandemic is pummeling New York City’s commercial real estate industry, one of its main economic engines, threatening the future of the nation’s largest business districts as well as the city’s finances.
The damage caused by the emptying of office towers and the permanent closure of many stores is far more significant than many experts had predicted early in the crisis.
The powerful real estate industry is so concerned that the shifts in workplace culture caused by the outbreak will become long-lasting that it is promoting a striking proposal: to turn more than one million square feet of Manhattan office space into housing.

Nearly 14 percent of office space in Midtown Manhattan is vacant, the highest rate since 2009. On Madison Avenue in Midtown, one of the most affluent retail stretches in the country, more than a third of all storefronts are empty, double the rate from five years ago.

The collapse of commercial real estate is another major burden for New York, since the industry provides a significant portion of the city’s tax revenues.
Filings to erect new buildings in the city, a key indicator of industry confidence, have dropped 22 percent this year to 1,187, the lowest number since 2010.

As of late October, only 10 percent of Manhattan’s one million office workers were reporting to the office, according to a survey by the Partnership for New York City, an influential business group.
And this already bleak picture could even get worse, real estate experts and industry executives said.

“It would probably be fair to say we haven’t hit bottom yet,” said James Whelan, president of the Real Estate Board of New York.
It does not appear that the major commercial landlords in the city are facing financial collapse, but the stocks of the ones that are publicly traded are down sharply since March.
The fallout from the crisis can be seen in a rising tide of litigation between landlords and tenants, even at some of New York’s most gilded addresses.
At the Shops at Columbus Circle, a luxury mall overlooking Central Park, the developer has accused a group of high-end retailers, including Michael Kors and Hugo Boss, of skipping out on more than $7 million in rent and fees. On Fifth Avenue, the Italian designer Valentino has sued its landlord to free itself from a lease of nearly $1.6 million per month.

New York City’s finances — money to pick up trash, repair parks and police streets — rely heavily on the health of the industry.
Property taxes represent the largest source of city revenue, and commercial property accounts for the largest share of that overall levy, 41 percent, according to Thomas P. DiNapoli, the state comptroller.
Commercial property sales have plummeted by nearly 50 percent through October, according to Rahul Jain, a deputy state comptroller.
A weakened commercial real estate market will make it “much harder for businesses and the economy to get back to normal,” Mr. DiNapoli said.
The lack of workers is having a ripple effect on rents. Across Manhattan’s retail corridors, asking commercial rents have dropped nearly 13 percent from last year, according to CBRE, a commercial real estate firm. The steepest declines are in areas dominated by office buildings, including Times Square and Grand Central Terminal, and shopping destinations like SoHo.

Commercial real estate is a vital source of the city’s revenue, accounting for 41 percent of its property taxes. But many buildings are

The industry’s troubles, initially sparked by the exodus of office workers during the state’s stay-at-home orders in the spring, have persisted as many commuters have settled into long-term or permanent remote-work arrangements. Tourists have also largely disappeared.

As a result, tensions are growing between the city’s powerful landlords and some of their equally powerful tenants. Property owners have accused blue-chip companies of using the pandemic to withhold rent they can afford, while tenants have portrayed landlords as greedy and unwilling to acknowledge economic reality.

“It’s not easy, but we need to make sacrifices, and landlords need to make sacrifices,” said Lawrence Berger, chairman of FanzzLids Holdings, which owns Lids, an athletic headwear store whose flagship shop is in Times Square.
The shop has been sued over more than $511,000 in unpaid rent and charges at four other Manhattan stores that were closed for months at a time.
“The amazing thing to us is that in New York, they’re going after rent for times when we weren’t allowed to be open,” Mr. Berger said. “We have worked out deals with our landlords across the country except in New York City.”
Landlords like Related, which owns the Shops at Columbus Circle and has sued five of its tenants there, say they have their own financial obligations and tenants that can afford rent should pay.

The litigation does not capture the behind-the-scenes, high-stakes negotiations that have led to resolutions without resorting to court, said William H. Mack, a commercial lawyer at the firm Davidoff Hutcher & Citron in New York.
Mr. Mack has been hired by Hugo Boss in its effort to reduce or void its lease at Columbus Circle. “This is 80 to 90 percent of what I’ve been doing since March and April,” he said.
At the Real Estate Board of New York, whose members include nearly every major landlord and developer in New York, the prospect of systemic changes in work habits looms large.

“Anyone that thinks the way that people used the workplace in the past isn’t going to change postpandemic is fooling themselves,” said Scott Rechler, chair of the Regional Plan Association and the chief executive of RXR Realty, which controls 26 million square feet of city office space.

Commercial rents in many of Manhattan’s usually busiest districts, like Times Square, have plunged nearly 13 percent since last year.
Employers have discovered that productivity does not necessarily suffer in the absence of shared work space and that smaller office footprints and more lenient work-from-home policies might make lasting economic sense.
As a result, the landlord group is proposing that the city and state allow developers to more easily convert Manhattan and borough offices into residences.

Roughly 140 million of Manhattan’s 400 million square feet of office space is considered to be of average quality or is in older and less luxurious buildings, according to Cushman and Wakefield, a real estate brokerage. The real estate board puts the citywide supply of those buildings at roughly 210 million square feet.


The real estate group estimates that converting even just 10 percent of that office space to residential would create 14,000 apartments citywide, including as many as 10,000 in Manhattan — a significant amount in a city routinely short of enough housing, especially affordable homes.
Changes to zoning rules needed for any conversions would require that some portion of new housing be set aside as affordable, the board said.
Mark A. Willis, a senior policy fellow at New York University’s Furman Center for Real Estate and Urban Policy, said that before the pandemic, job growth was outpacing housing growth in the city, causing demand to far outstrip supply and exacerbating the city’s persistent housing shortage.
“Facilitating the reuse of buildings to adapt to changes in the economy is, to me, a very smart idea,” Mr. Willis said.
Some tenants are using the current downturn — and the resulting lower prices per square foot — to trade up for nicer office space, the board said. That is a boon for higher-end office landlords, but could bode ill for landlords of lower-rated buildings.
Converting office buildings to homes would not only provide a potential financial lifeline to landlords, but would also benefit retailers, the real estate board argues, because the presence of office users during the day and apartment dwellers at night would increase foot traffic.
There is no reason, they argue, for Midtown to retain its status as New York’s last predominantly office district, bustling during the day but quieter at night.
They cite the success of Lower Manhattan, which in recent decades has turned from an almost exclusively office district into a vibrant residential neighborhood.

The proposal would require changes to zoning and density rules that would have to be approved by the City Council and the State Legislature and embraced by the mayor and governor.
Gov. Andrew M. Cuomo’s office would say only that he would review the idea.
A spokesman for Mayor Bill de Blasio, who is term-limited and about to begin his last year in office, welcomed the housing proposal.
“City Hall is always looking for sensible, equitable ways to deliver more housing,” said the spokesman, Bill Neidhardt.
Still, converting office space to apartments is not easy. Landlords would still need to wait for buildings to empty, which can take years.

The landlord group says the city and state should help expedite conversions by lifting zoning restrictions that require manufacturing in areas like the garment district, changing density requirements that bar apartments and creating new tax breaks for landlords.
Whether city and state elected officials will green-light a measure that would help real estate developers when so many tenants are struggling is an open question.
Several candidates vying to succeed Mr. de Blasio have vowed to refuse campaign donations from real estate developers.
Nor is it clear how many landlords would actually take advantage of the proposed changes.
Jeff Gural, who controls a large portfolio of aging buildings in Manhattan, said he would rather remain in his current line of work.

“We don’t have that much vacant space to begin with,” Mr. Gural said. “And I believe there will be a demand for the kind of space that we have.”
Another possible source for expanding housing would be to convert hotels, many of which have closed as the industry has been decimated by a plunge in tourism and business travel.
That idea is gaining traction among some developers and affordable housing advocates. One group that is trying to shape the 2021 mayoral debate, United for Housing, will argue in an upcoming report that the next mayor should prioritize converting hotels into permanent supportive and affordable housing.
As for the real estate board’s proposal, some housing advocates say the pandemic is an opportunity to come up with creative way to ease the city’s housing crisis.
“We need a comprehensive plan for how to bring on new housing resources, and the idea of converting office buildings to residential I think has a lot of upsides,” said Brenda Rosen, the president and chief executive of Breaking Ground, which describes itself as the state’s largest provider of supportive housing.

 

David Goldsmith

All Powerful Moderator
Staff member
Post Mortem: How New York Brokers Hustled Their Way Through 2020
The coronavirus pandemic led to leasing activity plummeting around Manhattan and hundreds of retailers closing up shop.
After a 2020 filled with thousands of people sick and dying, job losses, beloved businesses closing, holidays spent alone, inability to see friends outside of a screen, and feeling like you’re reenacting the movie “Groundhog Day” in your home every day, 2021 is on the horizon with the hope of a vaccine.
The real estate market has faced a brutal 2020, with leasing and investment activity plummeting in New York, while retailers filed for bankruptcy and closed up shop by the dozens.
From January to November, Manhattan saw only 11.87 million square feet of office leasing activity, a 58 percent decrease from the 28.53 million square feet signed during the same time last year, according to CBRE. November’s 480,000 square feet, in fact, was a record monthly low for Manhattan and the third time the record was broken this year.

Many of the deals this year have been renewals — including the second largest of the year, NYU Langone Medical Center’s 633,000-square-foot renewal at One Park Avenue — as most companies took a wait-and-see approach in 2020.
“Unless you have to do something, why do something today?” said Michael Mathias, an executive managing director at Savills. “A lot of people are making the best use of their space and are going on with their lives.”
But, even with the bleak office leasing numbers, there have been some bright spots in the market. Facebook’s long-rumored, 730,000-square-foot deal finally closed in the middle of the pandemic in August, clinching the title of the largest office deal of the year.
It wasn’t just Facebook offering hope to Manhattan. TikTok provided some much needed good news at the height of the pandemic when it took 232,000 square feet at the Durst Organization’s One Five One in June; and Apple took another 116,000 square feet at 11 Penn Plaza in November, after the tech giant had already signed a lease for 220,000 square feet in February.

“The tech sector continues to grow during the pandemic and commit to space,” said Bruce Mosler, chairman of global brokerage for Cushman & Wakefield. “While office occupancy is low, they’re clearly making a statement about where they think people will want to be.”
And tech is one of the major reasons brokers were able to get any deals signed this year at all.
After about a month of trying to figure out how to best market buildings to prospective tenants during the pandemic, when in-person tours were all but impossible, CBRE’s Paul Amrich visited the properties himself.
“I woke up one morning and said, ‘Why don’t I just go through and walk all our buildings?’” Amrich said. “To relook at how vacancies feel and how we’re dealing with COVID.”
That’s when Amrich got an idea: Why not invite other brokers to join him virtually? So, Amrich set up a live Zoom tour of 1245 Broadway in July, where he spent 30 minutes showcasing the building and showing renderings of parts under construction. Nearly 200 people tuned in.

“Our phone blew up afterward,” Amrich said. “It almost created this connectivity to the brokerage community that everybody very much missed.”
Brokers have also relied on Zoom calls to hammer out leases. Most agreed that the pace of the video calls, along with not having enough time to switch gears between them, were draining. Though JLL’s Peter Riguardi did find some pluses to only being visible on a webcam.
“You’re able to be on a video call with the other side of the deal, and at the same time, you can be texting your colleagues ‘don’t say this, don’t say that,’” said Riguardi, whose deals this year include BNP Paribas’ 323,000-square-foot lease at 787 Seventh Avenue and Apple’s deals at 11 Penn Plaza. “We had a lot of success and it worked, but it does in no way substitute for face-to-face.”
Brokerages rapidly expanded their tech tools in general, as well as the data they provide to clients during the pandemic. This quick evolution turned out to be a silver line, executives say.
“The communication and technology level that we have with our clients today is tenfold to what it was,” Mosler said. “It caused us to up our game in terms of what our best practices are.”

Mosler said one of the things Cushman & Wakefield has focused on during the pandemic is developing plans for their clients’ workspace post-COVID-19 and giving them plenty of data on trends. That included a study that found that most millennial and Gen-Z workers crave going back to the office. It also famously included a May analysis for the so-called “6-foot office,” designed to keep workers safely socially distanced.
“This has been a moment to show your clients that you’re there for them and that you’re present,” Mosler said. “You must provide them with information on every level. It’s also an opportunity to be a leader and help them understand what the workplace of the future can look like.”
Most brokers expect office workers to flock back next year, especially once a vaccine is rolled out. Still, they say there’s plenty of ground to make up for after 2020.
Aside from decreases in leasing activity and the number of new deals, Manhattan has started to see a dramatic increase in sublease space. It stood at more than 16 million square feet in November, and Mosler expects the number to hit 18 million square feet by year-end. This spike in available sublease space has driven down rents, even in prime addresses.
“I anticipate that, the first half of next year, the people will reenter the market,” Mosler said. “And the first people in the market will look to take advantage of some of those economically beneficial leases.”

Along with the increase in sublease space, Manhattan’s availability rate hit a 16-year high in October and was 13.5 percent by early December, according to Colliers International.
“Just because we’re going to have a vaccine and just because people are going to come back to work, it’s not going to mean that the economy in the real estate business is going to turn around at the same pace,” Riguardi said. “We have a few years of inventory that we’re going to have to burn through.”
The retail side hasn’t looked much better this year and already has been working through a punishing few years dubbed a “retail apocalypse.” Leasing velocity decreased in Manhattan for the fifth quarter in a row in the third quarter of this year and dropped below 3 million square feet for the first time since 2017, according to CBRE.
Dozens of iconic brands have closed or filed for bankruptcy — including JCPenney, Brooks Brothers and J.Crew — while others didn’t come out of 2020 alive.
Department store chain Century 21, which was founded in Bay Ridge, Brooklyn, in the 1960s, announced in September that it would permanently shutter its 13 locations, while Pier 1 Imports and Lord & Taylor also went out of business in May and August, respectively.

Neiman Marcus’ 188,000-square-foot Hudson Yards outpost closed in July, a little more than a year after it opened, with developer Related Companies now marketing the space to office tenants instead.
The wave of closures and bankruptcies could worsen if a second set of lockdowns hit the city because of the rising number of COVID-19 cases.
“Most of them are just hanging on for dear life,” said Peter Braus, managing principal of Lee & Associates NYC. “If there’s another shutdown and there’s no aid package for small retailers, then that will be the last straw for a lot of people.”
However, the few retailers signing deals during this time have been greeted with some significant deals.
“If you’re smart, and you have the resources to do so, you’re going to go out and try to snap up spaces that, otherwise, you wouldn’t be able to get for these types of deals,” Braus said. “Some of these deals are not anything they’re going to see again in their lifetime.”

Braus said he has seen spaces offer rents at half of what they were pre-COVID, as well as retail tenants moving a few blocks away in search of more favorable terms, significant tenant improvement packages, and the addition of a clause in leases helping tenants in case of another pandemic.
And, unlike office tenants who have been committing to shorter-term leases in order to buy time to figure out the pandemic’s impact on their business, retailers have tended to take longer leases than before to lock in deals. Braus, for instance, said he recently signed a 20-year lease and a 22-year lease.
“If they’re going to take space, they want to lock in a great lease for a long period of time and not have to worry about what happens in five years,” Braus said. “Of course, that’s not what the owners want, but they’re not really driving the bus right now.”
As grim as 2020 looked, brokers are hopeful next year will be better, especially with a COVID-19 vaccine already being administered.
“A lot of people are gearing up for 2021,” Savills’ Mathias said. “There are a fair number of companies that have just been sitting on the sidelines.”

Cushman & Wakefield’s Mosler said that he expects there to be “pent-up demand” next year, as companies played a waiting game in 2020.
There will also be a more noticeable “flight to quality” in the office leasing market, since tenants will have to provide a better workspace to get workers to come back, Mathias said.
“The office is going to need to provide something additive to the at-home work experience,” he said. “There has to be some draw for people to come there. It can’t just be, ‘Hey, we have snacks.’”
CBRE’s Amrich is gearing up to have a strong first quarter and has started to see long-term lease commitments return for clients.
“The confidence level from the tenant community is back,” he said. “If someone was going to leave the city, they’ve left already.”

And the pandemic has brought some positives to the brokerage community with the wider embrace of technology. Riguardi guessed that half of his traveling for work could be replaced by a quick Zoom call in the future and virtual tours could help clients whittle down a long list of potential spaces to just a handful. However, he said there’s no replacement for an in-person walkthrough of an office.
“The video tours of the space are definitely effective, but I would never expect a client to make a decision based on that,” Riguardi said. “There are things that you don’t see on camera. The camera is only showing everything in its most positive light.”
Despite his success with virtual events, Amrich agreed and doesn’t expect to continue them in the future. But, one good thing the embrace of technology did give him was more time with his loved ones.
“This caused you to kind of get off the treadmill, and you got this silver lining of amazing time with [your] family and children,” Amrich said. “If there was a way that you could work your schedule, where you could get a little more family time through the use of technology, I think that’s a good result of this.”
 

adam555

New member
The reason for the end office place is that in covid mostly people search online things and bring them at their doorstep that's why big giant thinks that they can earn more profit on online market places like Amazon, eBay, and Poshmark by using automated tools that also save costs.
 

David Goldsmith

All Powerful Moderator
Staff member

A long road ahead for office landlords​

The office sector’s recovery won’t begin until after next year, industry experts say

Manhattan’s Paramount Group received an unsolicited takeover bid early last month for about two-thirds of what the company was worth prior to Covid.
Just a few weeks later, the real estate investment trust’s board unanimously rejected the offer from activist investor Bow Street, noting that its offer was “inadequate and significantly undervalues” the office landlord run by Albert Behler.

The hedge fund’s bid, however, was in line with Paramount’s stock price, which plunged at the onset of the pandemic and has hovered at just under $10 a share since. And the REIT, which has a market cap of about $2 billion, may still be on the table for a higher offer.
“Our board and management team remain open-minded,” Behler wrote in a letter to Bow Street’s managing partners.

It’s a tense reality for the pandemic-battered landlord whose trophy office buildings in Manhattan and San Francisco remain mostly empty as the vast majority of employees continue to work remotely.
Meanwhile, Paramount isn’t the only office landlord in hot water.
Vornado Realty Trust recently unveiled plans to reduce compensation and shed 70 jobs to lower its annual overhead costs by more than $35 million. Empire State Realty Trust, likewise, announced plans to lay off six employees and furlough another 156 as part of the firm’s cost-cutting measures, after reporting a net loss for the second consecutive quarter.

“We need to get through a very difficult point now,” Anthony Malkin, Empire State Realty’s chairman and CEO, said in an interview. “I’m highly confident. I’m also a realist. … We probably won’t see the bottom until the first quarter of 2022.”
Paramount declined to comment for this story. Vornado did not respond to requests for comment.

The availability of office space in the biggest markets around the country hit new highs in recent months, as a growing number of tenants look to weather the pandemic and economic fallout by subleasing space. At the same time, struggling hotels and retail assets are being converted into new offices, adding to a potential oversupply in major cities like New York, Chicago, Los Angeles and San Francisco.

Manhattan’s office availability rate was at more than 13 percent last month, the highest level since 2003, with Midtown and Midtown South setting historic records of 14.4 percent and 12.8 percent respectively, according to Colliers International.
“It is significant to acknowledge it,” said Franklin Wallach, Colliers’ senior managing director of New York research. “But of course, we are in very unique times right now with Covid-19.”

The availability of office space in Chicago’s central business district, meanwhile, rose to a rate of more than 22 percent at the end of the third quarter, according to CBRE. In Los Angeles County, the availability rate was at roughly 21 percent as of early December, a recent report from Avison Young found.
And market conditions could get worse before they improve.

Many workers who finally returned to their offices this fall have retreated again, facing a resurgence of Covid infection rates. Industry experts say the latest vaccine news offers a dim light at the end of the tunnel, but a long road to recovery is still ahead.

The WFH reckoning
In an effort to lead by example, SL Green Realty CEO Marc Holliday, who lives in Scarsdale, has been commuting by train since March.
During SL Green’s third quarter earnings call, Holliday lamented the low physical occupancy rate of his firm’s office portfolio.
“We’re still … right around the city average of probably 15 percent to 20 percent back to office work,” he said. “That means 80 percent, 85 percent of the people that work in office buildings are still home, and that’s frustrating.”

SL Green declined to comment.
During recent earnings calls, executives of other office landlords acknowledged that while most tenants have been keeping up with rent payments, the majority have also kept their workers remote. Building owners maintain that they’re creating safe office environments, in an effort to lure back workers, but the recent surge of Covid cases is once again sending people home.

And one contender in New York City’s 2021 mayoral race has added to the list of grievances. “We owe it to our kids to do everything we can to keep schools safe and open,” the city’s comptroller, Scott Stringer, tweeted in mid-November. “Shut down office buildings.”
Nearly nine months into the pandemic, the physical occupancy rate of offices in the country’s top 10 metro markets remains at an average of about 25 percent, according to Kastle Systems, which aggregates data from its swipe card door access system.

Countless office buildings around the U.S. have remained almost completely deserted since the beginning of the pandemic, and the return rates among office workers in San Francisco, New York and Chicago, were among the lowest as of Dec. 2, at 12.8 percent, 14.3 percent and 16.6 percent, respectively. Los Angeles fared better than average at 31.7 percent.

For landlords, physical occupancy matters, said Alex Goldfarb, a senior REIT analyst at Piper Sandler. Similar to Malkin, he predicted that office leasing in major markets like New York will begin to normalize in 2022.
“You really need all the employees to come back to work,” Goldfarb said. “Then employers feel better about how they’re going to handle things and they’ll be able to make growth decisions on leasing.”

Peter Brindley, Paramount’s executive vice president of leasing, has argued the same point.
“One of the things that we subscribe to entirely is that physical occupancy will generate new leasing activity,” he said during the REIT’s third quarter earnings call in late October.
andemic pressures

Compared to hospitality and retail, the office sector has appeared more insulated from the pandemic.
But when dealing with office tenants that are nearing the end of their leases, landlords have had to maneuver carefully. The number of short-term lease extensions has rapidly increased during the pandemic as both property owners and tenants avoid making decisions that could prove to be too concrete in the year ahead, according to industry sources.

At the same time, space available for sublease continues to flood major cities around the country.
As of Nov. 30, Manhattan’s available sublease space was more than 24 percent of the market’s total availability, at about 17.3 million square feet, signaling a “glut” of inventory on the near horizon, Colliers’ Wallach noted.
In Chicago’s central business district, the amount of sublease space on the market has surpassed 5.3 million square feet, the highest on record and about 15 percent of total availability, according to Cushman & Wakefield. And the amount of available sublease space in Los Angeles County in early December was 7.6 million square feet, about 17 percent of total availability, according to Avison Young. That’s also the highest on record, exceeding the 6.5 million square feet in sublease inventory in 2009.

Office landlords have faced a “lot of downward pressure” on pricing as they contend with the “enormous amount of subtlet office available,” said Manus Clancy, senior managing director of the financial data firm Trepp.
In turn, the amount of free months of rent — typically offered by landlords at the beginning of a new lease — has spiked by 30 percent nationwide since the pandemic hit, according to a recent report co-authored by Trepp and CompStak.

Some building owners have also boosted their tenant improvement allowances, said Jonathan Larsen, a commercial broker with Avison Young based in Los Angeles.
Office landlords would prefer to give out more concessions as long as they can maintain their asking face rent because “they are focused on preserving the value of their property,” said Artree Maharajh, Avison Young’s research manager for Los Angeles County.

Local landlords are holding out hope that the market will begin to recover once enough people get vaccinated, Maharajh said. “They’re not trying to do the deals any lower than they need to because, at some point, they’re going to need to sell the building,” he said.
But the far-reaching impacts of Covid could make a full recovery tricky, as tech firms continue to lead the charge on remote working as a way to cut costs and give workers a greater sense of flexibility. Software giant Salesforce, for example, recently told analysts that it plans to consolidate and sublease some of its office space as more people work from home.

On top of that, some owners of struggling hospitality and retail properties are adding more supply to an already saturated market.
Major hotel chains like Marriott and Hilton and boutique brands like the Wythe Hotel in Brooklyn are now promoting their hotel rooms as makeshift offices. Meanwhile, a 377,000-square-foot retail space on Manhattan’s Far West Side has been marketed for office use since this summer. That includes 190,000 square feet formerly occupied by the Neiman Marcus department store at 20 Hudson Yards.

Facebook, which inked a lease for 1.5 million feet of space in the megadevelopment last year, was said to be interested in the space. But a spokesperson for Facebook told The Real Deal this month that it’s not considering the space.
Related Companies and Oxford Properties, the co-developers of Hudson Yards, did not respond to requests for comment.


“You’ve seen almost 650,000 square feet of former retail or hotel space come back to the market as offices because this has affected so many other asset types,” said Colliers’ Wallach.
The issue, he added, is that it “puts more supply pressure” on Manhattan’s 526 million square feet of existing office space.
The conversion crunch
The Real Estate Board of New York — whose members include some of the largest office landlords — recently proposed that the city and state allow developers to more easily convert offices into apartments. Across the five boroughs, REBNY has identified 210 million square feet of office space that could be converted into apartments.
In past recessions, converting vacant offices into residential units successfully transformed Lower Manhattan into a lively mixed-use neighborhood.
But office-to-residential conversions seem unlikely in this downturn, argued Carl Weisbrod, who led the neighborhood’s redevelopment effort in the 1990s and again after 9/11 as the founding president of the Alliance for Downtown New York.
“I think what we’re going through here is more of a cyclical issue than a structural issue,” Weisbrod said.
He added that while some Manhattan office buildings (and hotels) may be ripe for redevelopment, necessary government incentives won’t be available as the city struggles to balance its pandemic-ravaged budget.
“The incentives, if they’re offered, should really be offered only for affordable housing,” Weisbrod said.
Concerns over a fiscal crisis are also mounting in Chicago.
Facing a $1.2 billion deficit in fiscal 2021, Mayor Lori Lightfoot proposed a $94 million property tax hike to balance her budget plan, which was narrowly approved late last month. At the same time, Cook County is going through a reassessment of its real estate values.
Commercial property owners have been sitting on the sidelines as the real impacts won’t be seen until the middle of next year, said Laura Dietzel, a senior real estate analyst with the accounting services firm RSM US.
“Certainly, the state and local tax picture is going to be very important,” for the office sector’s recovery, she said. “Not just in Chicago but on the national level.”
Roads to recovery
The general consensus throughout the commercial real estate industry is that once vaccines are widely distributed, the office sector will finally be on track to rebound.
Until then, however, the sector’s overall availability rate could further increase as more office space is likely to come on the market for subleasing, said Nicole LaRusso, CBRE’s director of research and analysis.
“Our expectation is that until tenants — occupiers — recall their workers to the office, we will not likely to see occupiers making commitments to take on more space,” she said. “And we don’t think they’re going to recall workers to the office until people feel that commuting and being in the office together is safe.”
As the downturn continues into next year, landlords will be required to adopt even more, said David Falk, Newmark’s president for the New York tri-state region.
“With all the tenants cutting back and shrinking, there will be adjustments to the economics, to the rents, and more free rent and more tenant improvement allowances,” he said. “Landlords will probably have to spend more money to entice tenants to move to their buildings.”
Industrious CEO Jamie Hodari, who has been partnering with building owners to create more flexible office space, said smart landlords are trying to take advantage of the “work from anywhere” trend.
On the tenant side, Jack McKinney Jr., a commercial broker with Cushman & Wakefield in Chicago, said employers “will be looking to ‘ammenitize’ in a way that encourages people to come back to the office.”
Whatever it takes, having employees return to the office is key for a business to grow, Empire State Realty’s Malkin argued.
“The fact that people have been able to accomplish certain tasks from home does not mean they’ve been able to start new businesses, acquire new customers — they’ve just been able to maintain,” he said.
“It’s very clear that people cannot build teams, [build work] culture, share ideas without being with each other.”
 

David Goldsmith

All Powerful Moderator
Staff member

Covid-19 vaccine won’t be immediate cure for office market​

Even with vaccine, workers may not return to offices before summer

It’s been a rough year for the office market — and it’s unlikely that the first half of next year will be much better.
Even though Covid-19 vaccines are being distributed across the country, public health and real estate experts believe that a return to the office likely will not happen until late spring or early summer, the Wall Street Journal reports.
Experts say that it will take months for the vaccine rollout to become effective and for employees to reach herd immunity, meaning remote work will continue in the next year and office rents will continue to drop.

The real estate firm CBRE projects that office rents could fall by as much as 8 percent in 2021.
In the meantime, landlords are dealing with mostly empty offices. An average of about 23 percent of workers in 10 cities had returned to the office the week of Dec. 16, according to Kastle Systems, which tracks access-card swipes. The highest rate since the pandemic was 27.4 percent in mid-October, Kastle said.

Some companies are planning their return to the office in light of the promising vaccine news. In New York, 25 new tenants per week were searching for office space in the first two weeks of December, up from 20 per week in November, according to the data firm VTS.
Many of these companies are considering leasing space from co-working operators such as WeWork and Industrious, according to the Journal.
 

John Walkup

Talking Manhattan on UrbanDigs.com
Price tells all. Get those office rents low enough and they will fill covid or not... When cell networks began cutting rates in the early 2000s it was nickel by dime so they all went down holding hands. Unfortunatley for many CRE landlords, the first one to the magic price wins, the rest will have to go lower.
 

David Goldsmith

All Powerful Moderator
Staff member

Are You Sure You Want to Go Back to the Office?​

The future of work is flexibility.

There’s a common refrain among people who’ve been marooned in their homes this year, trying to manage their jobs and their children’s distance learning, always fighting the losing battle against the dishes, the laundry, the dog hair, the grocery list. “I cannot wait to get back to the office,” they say.

But people don’t really want to get back to the office. They want to get out of their apartments, their houses, their parents’ houses. They want their children back in school, and also out of the house. They want to see people’s faces again, and have conversations with people who are closer than six feet from them. But that doesn’t mean that they actually want to be back in the office — at least not the way the office was before.
Many companies are preparing to bring employees back in the spring or summer, depending on how fast the vaccines roll out. Picture it: At first, the office will feel like the first day of school, senior year — everything’s familiar, and all your old comforts are there, and everyone’s thrilled to have the sort of proximity we’ve actively avoided for months.
But the old annoyances will arrive right on schedule. The commute will still be long; there will still be too many meetings and time-sucks; it’ll still feel like a mad rush to get out the door in the morning or get dinner on the table at night. The question will present itself: Why, again, do we insist on traveling to an office every day?

When I talked to dozens of analysts, H.R. experts, architects, consultants, real estate agents and office furniture designers, the consensus was clear: The future of office work is flexibility. At one end of that flexibility spectrum, there will be fully “distributed” companies like the software maker GitLab, with no headquarters and employees scattered across the world. At the other, there’ll be more old-fashioned organizations that demand face time in the office, but whose belief in the infeasibility of remote work has been permanently undercut.

And then there’s the vast, corporate in between. Headquarters aren’t going away, but more companies will embrace the hub-and-spoke model: smaller footprints in big, expensive cities, and smaller offices in places where employees want to (and can afford to) live. Some companies will keep their existing office space and allow people to claim staggered schedules that align with their preferences, avoid peak commuting times, and reduce overall capacity in the office.

Others will try what used to be known as “hoteling” or “hot desking,” in which multiple workers share a desk. Still others will offer stipends for employees to join the small, neighborhood-oriented working spaces that will proliferate as Americans get vaccinated.

People will be leaving their homes, having conversations, working with others — which is what they actually miss when they say they miss the office. They’ll just be doing it more on their terms than ever before.

There are problems, of course, with each of these scenarios. Let people do what they want and the pre-pandemic power dynamics of the office will simply reproduce themselves. No one, for example, should be allowed to go to the office every day — otherwise it’ll just become yet another way to prove yourself the better, more present worker. And the employees most likely to embrace the flexibility of working from home are the same people expected to perform the majority of labor in the home: women.

Remote work will have to be viewed as equally important as in-person work. In practice, that means rethinking what remote working actually looks like — that is, very little like what we’re doing now. We’re not just working from home, after all. We’re working from home during a pandemic.

We might have haphazardly arrived at workarounds, but there’s still so much more to develop, whether in terms of dedicated heads of remote work, or technology that actually makes hybrid in-person and remote meetings feel less awkward.

“I think the future is actually having to manage people,” said Adam Segal, the chief executive of Cove, which helps companies organize shared desk and conference space. “The default setting right now is that you just see people in the office, and that’s how you manage them. But now people actually have to learn how to communicate about the work that you’re doing, about productivity, about expectations.”

The companies that are creating the tech, the flexible office space, the modular, high-turnover conference rooms — they’re ready. But everyone else still seems to be in maintenance mode.

“I haven’t heard from anybody, anybody, who’s thinking about how we’re going to make ‘Working Parenting 2.0’ or ‘Flexibility 2.0’ work,” Daisy Dowling, who runs a consulting and coaching business for working parents, told me. “People are too assaulted right now, and they haven’t quite gotten to the planning yet. But that’s kind of scary, because when we do get there, they won’t have the structures in place.”

If the structures aren’t in place, piecemeal hybrid schedules will fail, and we’ll end up right back where we were before.

For employees’ relationship to work to meaningfully change, companies need to start thinking about it now. What has previously been subtext will have to become text. If your department all comes in on Thursdays, what do you do with that valuable, weekly time? Which meetings are essential, which could be silent, or a simple progress update?

If you take the train into the city only once a week, that day becomes useful: a time specifically for collaboration and ideas, instead of just another day spent endlessly toggling between emails and meetings, doing everything and getting nothing done. Instead of resenting your exhausting slog into the city, it might start to feel actually productive.

“Right now, we’re in an emergency, and the red lights are flashing,” said Michael Colacino, the president of the office real estate company SquareFoot. “But when the lights are off, the question will still be: ‘How do I get the engineer I want, or the web designer I want? How do I induce them to come here? I can pay them more money, which is expensive. Or I can give them more space, more feeling of safety, more amenities.’”

All of these companies catering to the highly skilled work force told me the same thing: Post-Covid flexibility is going to make the office even better. Workers are going to have a higher quality of life, more time with their kids, more connection to their communities. They’ll be able to live where they want to live, stop paying exorbitant rent. They might even figure out how to work less, simply by being able to concentrate more. This is the wild, blissful, utopian flexible future.

But this is also a huge shift in the understanding of corporate flexibility — an ethos that was embraced in the 1980s and ’90s. Back then, flexibility was for hirers, not employees. Corporations wanted a work force that could be expanded and reduced quickly, that wasn’t yoked to the company through long-term contracts, faint ideas of loyalty, or union demands. In short, they wanted disposable workers instead of the long-term (or even lifer) employee who had historically weighed down the bottom line.

The “flexible” ethos was sold to employees with the language of choice — it’s liberating to be a freelancer or a contractor — even though it was often “freedom” to work more, for less pay, with far less stability. This made shareholders happy but left companies with a burned-out, less productive, and ever more alienated work force.

This was a problem pre-pandemic, and it’s a bigger problem now. Which brings us to the bleak heart of the issue: A vast majority of people who were in “good” jobs — stable, well paid, with benefits — before the pandemic have managed to maintain those good jobs. Doing the job might have become more difficult, but the job itself has largely remained steady.

These employees are the ones whose bosses are going to be seeking these solutions, who are thinking of hiring heads of remote work, who are looking to even further “amenitize” their spaces, to figure out new strategies to make work-life balance real.

For the rich, and for the office worker whose skills are in demand, the Covid-19 recession has been over for months. With that sort of economic stability brings the ability to innovate and think about what “flexible” could mean moving forward — including, hopefully, new ways of thinking about the centrality of work in our lives. When you’re not compelled to be in the office from 9 to 5, “flexibility means you actually schedule your day around your life,” as Mr. Segel put it, “instead of around your work.”

That sounds great. But actual work-life balance — the kind that comes with health care and the ability to someday retire — should be for everyone, not just programmers and web designers. The bargaining power that comes from something as old-fashioned as a union or something as seemingly radical as Universal Basic Income would liberate workers to ask for more. Not more money, necessarily. But genuine flexibility to make work secondary.

If the future of work is flexibility, our challenge now is to make sure that future doesn’t just worsen the ever-widening divide in American society between those promised a new vision of the good, balanced life, and those for whom “flexibility” means effacing your wants and needs and dreams, once again, to the fickle demands of your employer.
 

David Goldsmith

All Powerful Moderator
Staff member

Manhattan office availability hits record high
Total leasing volume in 2020 declined by 56% compared to 2019

The office market in Manhattan finished out a bleak year with an even bleaker quarter.
Manhattan’s office availability in the fourth quarter hit a record high of 14.3 percent. That’s 16.3 percent higher than it was in the third quarter, and up 43 percent compared to a year ago, according to Colliers International’s latest market report.

A big chunk of that — 24.2 percent — was sublet inventory, which expanded by 6.45 million square feet in the past year.

Overall, the pandemic left a large scar in Manhattan’s office market in 2020, reducing the annual leasing volume to 18.9 million square feet, down by 56 percent from a year ago.
As companies deal with both a devastating economic downturn and grave uncertainty about their future office needs, leasing activity has dramatically declined. In the fourth quarter, only 4.2 million square feet was leased — down by a whopping 68.4 percent compared to the same period last year.

The average asking rent in the fourth quarter was $74.39 per square foot, a decrease of 3.5 percent compared to the third quarter, and down 5.6 percent from a year ago.

The severe impact from the pandemic was visible in all market indicators, said Franklin Wallach, Colliers’ senior managing director for New York research. But “value-seeking tenants” found some opportunities, he said.
Major leases signed during the fourth quarter included NYU Langone’s 633,000-square-foot renewal at Vornado Realty Trust’s One Park Avenue; Justworks’ 270,000-square-foot renewal at 55 Water Street; the City of New York’s 157,000-square-foot renewal at AmTrust’s 250 Broadway; the Travelers’ 133,000-square-foot renewal at SL Green’s 485 Lexington Avenue; and Apple’s 117,000-square-foot expansion at Vornado’s Penn 11.

The office investment sales sector was also affected by the pandemic, with a fewer number of deals made in the fourth quarter compared to a year ago. But the top deal — SL Green and Kaufman Organization’s sale of 410 Tenth Avenue for $952.8 million to 601W Companies — made a big splash. Total sales in the fourth quarter was $1.15 billion, down by 62 percent compared to a year ago.

Peter Nicoletti, Colliers’ managing director and head of New York City capital markets, said that in 2021, “we anticipate more activity, especially around well-leased assets and those that are significantly impared.”
 
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