July 2023

Midtown Office Buildings: 80% full or 20% empty

The vacancy rate of Midtown office buildings was recently reported to be approximately 20%, as concerns in the market continue to linger around the future of office space.

More than the "WFH movement", a significant and direct driver of the high vacancy rates today is the financial predicament faced by landlords. In a typical market, high supply typically leads to reduced pricing to meet equilibrium with the demand.

However, a significant number of property owners are grappling with substantial debt that cannot be easily refinanced, leading to a host of challenges in the real estate market; among them, the inability to price their space to market.

With values taking a considerable hit, landlords are left questioning whether they should continue investing in these properties and sign leases at rental rates that imply a significant erosion of the building value from their previous levels. A classic “do we throw good money after bad?” kind of dilemma.

Leasing office space is a capital-intensive endeavor and the lack of liquidity in the market can make it difficult, if not impossible, for many landlords to lease space at market rents while allocating new funds for concession packages and buildouts.

While we have certainly seen some buildings rise to the occasion and transact competitively to attract and retain tenants, other buildings are struggling with an adverse financial profile and capital stack with no relief in sight. 

As the WFH movement reaches its equilibrium, the next phase of the Midtown office markets evolution is going to be characterized by the financial strain on buildings burdened by debt, reduced values, and the lack of liquidity in the market - all of which creating exceptional opportunities for Midtown office tenants!

Until next month,

Ben

Ben Blumenthal
Principal Broker | Noah & Co.

P.S. - I recently joined the UrbanDigs podcast to share some thoughts on what's happening in the NYC office market:
You can check out the episode here

A crackdown on remote work combined with reports of work productivity slipping have led to an 11.6% increase in office leasing activity, with midweek Manhattan office visits reaching 70% of their pre-pandemic levels.

So where's the latest action?

Pleading the Fifth

- Forest Hills Financial Group relocating to 7k+ SF at 535 Fifth

- Law firm NSRGP renewed their 8th floor space at 555 Fifth

- Feil Organization inked Lockton Re to a 10-year lease at 261 Fifth

Watching South Park

- The Moinian Group will welcome Equiteq to 450-460 Park Ave South

- Tech Investor Primary expands with a 26k SF sublease at 386 PAS

- Innovant locked in a 7-year deal for a showroom at 440 PAS

Best of the West

- Michigan-based HMA moving across the street to 1155 AoA

- Town House Specialty Cleaning expanded to 9,800 SF at 242 W. 36th

- Paramount secured tenants across 6 new deals at 1501 Broadway

Midweek Manhattan office visits reach 70% of pre-pandemic levels

NYC vs. MSG: Will Dolan back the Penn Station redevelopment?

A hotel with a 260' tall ride may be coming to Times Square

MTA pilot program will offer fare-free rides across 5 bus routes

Phase 2 of the Second Ave. subway extension moves forward 

Congestion pricing is coming to Midtown. What will it look like?