NY Mag's Latest Cover: The Office-demic

In the latest cover story from NY Magazine, they say that we’re in an office apocalypse. But we believe (and others including Big Tech agree) that we’re actually in an office-demic and working from the office in NYC will be back. The question is when, and what should you as a decision maker do about it?

Big Tech is bringing their people back to the office citing losses in collaboration, community and culture as a result of work from home. Just days ago, Zoom announced that they’re requiring employees to come back into the office part-time starting in the fall. 

When Zoom doesn’t want to Zoom, we’re taking that as a sign. We predict that in the next 6 months, more and more companies will follow suit and these all-time low rents and unprecedented concessions will be a thing of the past. 

Here are 4 key takeaways we think you should know: 

  • Landlords are “panicking, pivoting, and shedding” – and in some cases, collapsing. As many companies remain hybrid or even fully remote, savings in the office space department = the CFO’s dream. The landlords? Not so much. They’re having a hard time filling space that used to go into bidding wars, and some are even on the verge of foreclosure. And if multiple over-levered buildings default on their loans, (more) banks could collapse. Some office landlords are walking away, like RXR defaulting on a $240M loan for 61 Broadway
  • Office vacancy has hit a historic high. Manhattan’s office vacancy rate is at an all-time high of 22%. The article states that “more than 128 buildings in Manhattan currently list more than 200,000 square feet of sublet space. When you add this to the total amount of available space in Manhattan you get more than 52 million square feet (equivalent to more than 40 skyscrapers the size of the Chrysler Building).” Examples include 111 Wall Street (aka The Shiny New One Without Tenants), newly renovated building and empty, and 29 West 35th Street (aka The Mid-Block Dump).
  • New Yorkers will be adversely affected if buildings collapse. When landlords can’t pay their mortgages or loans they might throw in the hat, which leaves the question -- who’s paying the taxes? Crickets. Public buildings contribute up to 21 percent of the city’s property taxes – money that goes to schools, public housing, parks, transportation, and other things that keep NYC life bustling. The potential ripple effect is daunting.
  • New York landlords aren’t going down easy – they’re getting creative. In the short term, tenant perks like new amenity centers, outdoor space and discounted economics have been enough to get some companies back. But not enough to move the needle permanently. So, landlords are getting creative about ways to convert office space, one of which is conversion to residential. The most notable example is the iconic Flatiron Building, where the buyer specified that he’d like to turn it into condominiums. The not so great news? The capital expenditures and construction required for such large-scale conversions will take a while, so we’re not holding out high hopes for our sky-high rental rates just yet.  

What can you do? It takes about 2 - 6 months to finalize the right space at the right price for your business. Now is the time to start exploring the market and letting us aggressively negotiate a deal on your behalf while landlords are still desperate to bring tenants back. When return to work rises (as it inevitably will), you don't want to be the one left holding the bag (or in this case, writing the larger than necessary rent check). 

The good news? We’re here to help you find the right deal for your business and your bottom line (or help you get out of space that no longer works). As tenant reps who never rep landlords (and never will), we’re uniquely positioned to negotiate aggressively on your behalf and deliver a solution with no hidden allegiance.  If we can help, please email Bert Rosenblatt at brosenblatt@cresa.com or call his cell 917.862.8820.