The city’s office market is all about hospitality and the flight to quality as building owners are sprucing up their products to woo the companies that are trying to entice their workers back to the office.
“It’s product not price,” said Howard Hersch, vice chairman of JLL, as some firms are forking over upwards of $100, $200 and even $300 per foot to get perched at the priciest properties.
That’s because tenants are “picky” and spending on quality spaces even if they are smaller than prior offices. “It would have been 20,000 square-feet before and now it’s 10,000 or 12,000 square feet,” said Peter Braus, managing principal of Lee & Associates NYC. “They spend the same but the quality level is higher and the dollars per foot are higher.”
Certain market sectors are also vastly outperforming others. “The obvious winners of the pandemic real estate market are the new buildings, said Michael Cohen president of Colliers Tri-State Region. “Work from home is just the next new way of making the workplace more efficient. It won’t replace the workplace but will augment it. It’s not the death knell of big cities.”
But there’s still a struggle to get employees back to work as occupancy was just 42.2% for the week of June 15, according to Kastle Systems’ metrics.
A Partnership for New York City survey of 160 companies found just 38% of workers present each day with 21% in two days per week. A whopping 78% expect hybrid work to become the norm.
Indeed, almost as soon as a company demands office attendance, they do an about-face as workers threaten to leave. “The employees are really running the show,” said Jodie Pulice, CEO, JRT Realty Group.
Recent surveys found the primary dog-ate-my-homework excuse for not leaving home is based on the fear of crime and riding the subway — something Mayor Eric Adams is addressing by adding cops to the underground, dismantling tents and chipping away at the crime stats.
Still, the couch potato career is a head-scratcher for those that have been commuting to the office regularly for over a year – including most real estate companies and attorneys.
The Partnership survey found 38% want more workers with 18% wanting to bump up their square feet. And right now, there is plenty to be found.
Recent stats from Colliers found a Manhattan availability rate of 17.2% in May, down .1% from April. Average asking rents were also down by 30 cents from April to $75.34 per foot.
At a recent NYU REIT conference, WeWork’s CEO Sandeep Mathrani said “If you want employees to come back, build a WeWork.” That’s because its co-working occupancies rose faster than those in regular offices as “the vibe was back.”
Tech companies, Mathrani said, are now facing the reality of where to put all their pandemic hires. “Now they are bringing them back and how do they house them, even if we bring them back one or two days a week?”
Coworking also worked for those who first showed up to empty offices and didn’t want to be by themselves. Instead, they parked themselves at such facilities closer to home or even at desks in their apartment tower’s amenity areas.
As the weather is better and daylight last longer, Winston Fisher, partner in Fisher Bros. said, “I’ve noticed a shift that the world is really opening.”
Once lifeless Midtown now has lunchtime throngs and many bigger companies are planning ahead with searches and signed leases.
HSBC leased 264,000 square feet at 66 Hudson Blvd. aka The Spiral, leaving its 452 Fifth Ave. offices to be re-leased and the building seeking a new owner after one deal fell apart. “[The building] has the genetics that will allow it to be a success,” opined Hersch.
A recent 84,000-square-foot expansion at 425 Park Avenue by Citadel, however, was sad news for 550 Madison Ave. which had hoped to add the investment company to its own tenant directory that now includes Chubb and Hermès, which leased 71,000 square feet in February.
Citadel, however, is also in talks to become the anchor tenant and provide the equity for a new 1,450-foot-high, 1.6 million-square-foot tower at 350 Park Ave./40 E. 5nd St. that would be developed by Vornado Realty Trust and Rudin Management.
These industry leaders see a future in which occupancy bounces back and companies want newer, better and bigger.
“There are buildings all over Midtown that are being set up for demolition or reconstruction with clauses in leases to terminate them if they want to tear them down,” said Cohen.
Hersch agreed “There will be more net losers where the…
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