New York Market Overview
Office:As Covid vaccinations bring a return-to-office closer to fruition, more companies are expecting to reduce their real estate footprints. 21% of company executives expect to reduce their office space in the next 12 months, up by 3% points from the third quarter.
Total office leasing was also 43% lower than the 2020 monthly average volume of 1.58 million square feet.in 2020.
Nearly half of companies expect that employees will be back in offices by September. As of early March, just 10% of Manhattan office employees have returned to the workplace. Some believe the trend of working-from-home or work-from-anywhere is likely to continue even after the pandemic. The office market could take three years to recover.
137 million square feet of office space was up for sublease at the end of last year, a 40% annual increase and the most since 2003. For landlords, subleases are a thorn in the office market. Sublease space typically commands a 25% discount from the previous price.
The de Blasio administration plans to end remote work for municipal employees on May 3 and will require workers to return to their physical offices. This move may compel more private businesses to bring their employees, many of whom have been working remotely, back to offices.The business group expects nearly half of the city’s one million office workers to return to the office by September.
JPMorgan Chase is looking to sublet about 700,000 square feet at 4 New York Plaza in the Financial District and more than 100,000 square feet at 5 Manhattan West in the Hudson Yards area. HSBC is similarly shifting to a hybrid remote-work model.
Eli and Isaac Chetrit are joining a number of landlords to try to attract tenants by offering more flexibility. Workville, a flex-office company, is opening a 60,000-square-foot location, occupying the entire building at 315 West 35th Street.
Dropbox, Zillow and Twitter have announced that a majority if not all of their workforce can permanently work from home. Other companies have adopted hybrid models, allowing employees to come in at their own discretion. At the same time, 72% of executives expect no change in their office footprint, down by 5% points from the third quarter of 2020. Landlords are offering amenities ranging from on-site child care to dry-cleaning pickup and parking discounts to bring back employees.
In New York City, Class A office asking rents fell by 1% and effective rents by 2.4%, much less than the forecasted drops of 4.4% and 8.6. It had been predicted a fall of 7.5% in the near future, not far from the 8.9% plunge in effective rents in 2009, during the financial crisis. Landlords did increase substantially the work letters and free rent. So the net effective rents fell in addition to the asking rent. Subleasing has increased by 80% last year in 83 markets.
Noho and Soho had a strong Q4 with about 1.4 million square feet of availability and 822,000 square feet of tenant demand. Prospective tenants for Noho and Soho are now more attracted, as rents have fallen substantially.
Net sublet availability rose by 1.14 million square feet last month, bringing sublet availability to nearly 20 million square feet, or about 24.3% of total availability.
JPMorgan began subletting its 700,000 square feet of office space in lower Manhattan. PricewaterhouseCoopers and Yelp are also trying to sublet their space in New York.
Retail:Asking rents along Manhattan’s main retail corridors have dropped dramatically as a result of the pandemic. In Soho, asking rents along Prince Street fell in the fourth quarter of 2020 by nearly half, from $719 to $423 per square foot.
Pinko signed a lease at the previous Bed, Bath & Beyond at 143 Spring Street. Pinko is paying a yearly rate of about $73 per square foot to sublease the Spring Street space, a “significant discount” from what the main leaseholder pays.
A retail bloodbath is coming in 2021: A recent report projected that as many as 10,000 stores may close this year. Larger retailers, particularly those that anchored shopping centers, are among those in harm’s way. Macy’s is planning to close 45 stores this year.
On Fifth Avenue, the average asking retail rent hit $271 per square foot, a 22% year-over-year decline. 30 stores along Fifth Avenue’s most prominent section from 42nd to 59th streets were vacant.
The average asking retail rent has fallen 10% in the past year to $652 per square foot, the lowest in a decade. With foot traffic down and occupancy limits still in place, some landlords are offering concessions and sales-based rent in the early years of the lease.
Subleases have become increasingly prominent in the retail sector as retailers empty out their physical locations amid the pandemic.
Retail subleases have seen an increase in deals being made and that number may grow. Landlords may also become more willing to accommodate subleases in the face of plunging rents and rising retail vacancies. Last fall, 17 of Manhattan’s biggest retail corridors saw their average asking rents drop from the same time last year, with those decreases ranging from 1 to 25%.
AMC, the international movie theater chain, has reopened nearly 90% of its U.S. cinemas. AMC has avoided bankruptcy and thanks to individual investors.
New York City restaurants are on a rapid pace to reopening. Gov. Andrew Cuomo announced that restaurants in the city will increase indoor dining capacity to 50%.
Educational facilities, namely charter and private schools, have continued to sign leases, and they’ve increasingly become a lifeline for landlords.
Burlington Stores wants to increase its total store count to 2,000 locations from 1,000. The company currently operates 761 stores, and intends to open 100 new stores this fiscal year. The company plans for the new stores to have a significantly smaller footprint.
Walt Disney Company plans to close 60 Disney Store locations across North America, as part of its shift to e-commerce. With 300 stores worldwide, the closures reflect a 20% cut in the brick-and-mortar footprint. Disney Company already shut more than a dozen stores last year.
Restaurant sales are down 44% across the state year-over-year, and most restaurant operators do not expect business conditions to improve over the next several weeks.
Sonic Drive-In is opening its first location in Manhattan at 966 Sixth Avenue. Sonic will take 5,400 square feet over three levels, replacing a closed Pax Wholesome Foods at the Midtown location. Sonic plans to expand rapidly in the coming years. The chain, which already has more than 3,000 locations across 46 states, aims to open 1,000 more in the next 10 years.
Target is adding and renovating stores, and warehouses. Target had a stellar year: Its 2020 sales growth of more than $15 billion was greater than in the prior 11 years combined. Total revenue for the fourth quarter increased 21% to $28.3 billion.
Walgreens and Duane Reade are subleasing at least 16 of their Manhattan locations, comprising of 156,000 square feet of space.
Hotels:Marriott and Lightstone Group are planning to open two Moxy hotels in Manhattan and Brooklyn next year. The new lodgings will be located at 145 Bowery on the Lower East Side, and at 353 Bedford Avenue in Brooklyn.
The hotel industry is starting to see signs of life, with occupancy numbers across the country hitting 49%. Travel apps suggest that booking numbers for summer vacations are on the rise.
The pandemic has led to more than 200 hotel closures in the city.
Ashford Hospitality Trust is going to walk away from some of its struggling properties.
The hospitality industry has been one of the hardest hit in the pandemic-driven economic downturn, with both smaller and major hotel brands being forced to hand their keys over to lenders. The owner of the Hilton Hotel in Times Square surrendered the property to one of its mortgage owners.
U.S. hotel occupancy hit 49% in the week ending March 6, its highest level since last August. That’s down from 65% in March 2020 before the effects of the pandemic were fully felt. Revenue per room is 38% lower. New York City officials predict that demand for hotel stays will not return to pre-Covid levels until 2025, with leisure recovering more quickly than business travel.
Hotel occupancy numbers and summer vacation bookings are up, and some developers are planning new hotels in anticipation of a possible travel boom in the next year.
Sonder, which rents furnished rooms by the night, plans to reopen the Flatiron Hotel in April. The hotel, at 9 West 26th Street, will be its first in New York City, a year and a half after Sonder agreed to lease it.