New York City office
and retail Market Research

January 2021

January 2021 New York Commercial Real Estate Market Report

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Manhattan Office:
Record Manhattan office vacancies, as existing office tenants either allow leases to expire or sublease their office space. New office construction continues and some hotels are being converted to office space.

Manhattan Retail:
Retail rents continue to fall as foot traffic in Manhattan’s most visited business districts has dropped off since the pandemic began, putting a strain on small businesses and retailers. The number of inactive storefronts has only increased, with more vacancies pending due to the eviction moratorium. Expect retail rents to continue to fall.

Manhattan Building Sales:
Sales of commercial properties are down 49% for the year. It has led to a crippling decline in revenue for New York City, which depends on real estate taxes to keep the lights on. Revenue was down 42% for the first 11 months of the year compared with the same period last year.

New York Market Overview

Manhattan Office:

Breather, the flexible office provider, is to close all of its locations, totaling more than 400 across the U.S., Canada and the U.K.

Deutsche Bank could move up to half of its Manhattan employees to smaller U.S. hubs in the next five years, as it plans a major building downsize. The potential move could be another blow to Manhattan’s hobbled office real estate market.

Deutsche is in the process of relocating from its 1.6-million-square-foot office at 60 Wall Street to a 1-million-square-foot building at Time Warner Center in Columbus Circle. The new location has workspaces for 4,200 people, though it can accommodate all 4,600 current staff with flexible working arrangements.

Google will allow remote work until September 2021. The company’s direction could affect the future of office real estate. Google is one of the biggest office tenants in New York. As of November 2018, Google has occupied 3.35 million square feet and owned 4.7 million square feet in New York City. Manhattan’s office availability rate climbed to 14.3% though the figure could be higher when including shadow inventory in the flex-office market from firms like WeWork, Knotel, IWG, Convene and Breather among others.

In total, 790,000 square feet of office space was leased, down by nearly 80% compared to a year ago and down by 55% from October.
In one of the first rulings in a Covid-related landlord-tenant dispute, a judge has decided that an office tenant is responsible for months of unpaid rent, despite the pandemic killing its business. Bold Food, the hospitality group founded by celebrity chef Bobby Flay, leased an office on the 12th floor of 1140 Broadway when the pandemic hit.

New York City office landlords, faced with empty workplaces, could soon have an easier path to rebooting their buildings. The Real Estate Board of New York, whose members are major developers and office landlords, is proposing that the city and state allow developers to more easily convert offices into apartments. In October, just 10% of Manhattan’s one million office workers had returned. Even as news of a vaccine lifted office REIT share prices, some of the work-from-home trends implemented during the pandemic may persist after it is over.

Struggling hotels and retail assets are being converted into new offices, adding to a potential oversupply.
New York has the biggest impact from the coronavirus due in part to their reliance on public transportation and embrace of working from home. The office return rate in the New York City region is 15.9%.

The pandemic has drastically slowed Manhattan leasing , curbing not only the number of deals, but also their dollar value. Manhattan office leases signed in 2020 by the amount of rent scheduled to be paid over the life of the deal was $3.12 billion, down 60% from the 2019 of $7.85 billion. Midtown and Midtown South setting historic records of 14.4% and 12.8% respectively. Manhattan’s Midtown and Midtown South submarkets set new availability records. The availability rate in Midtown was 14.4%, up by 3.4% points from a year ago and up by 0.5% points from the previous month. The rate in Midtown South was 12.8%, up by 4.6% points from a year ago and up by 0.7% points from the prior month. Manhattan’s available sublease space rose to 17.28 million square feet, or 24.3% of total availability. It’s now approaching the 25% mark, signaling a glut. During the Great Recession, the sublet inventory share peaked at 27%, and during the 2001 recession, it hit a high of 42%. 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.

Manhattan Retail:

Foot activity was down 50% in Chelsea, compared with February. That’s better than the spring, when foot traffic declined 75%, but is still lower than outer-borough neighborhoods where foot traffic has returned to pre-pandemic levels.When Gov. Andrew Cuomo shut down indoor dining again, restaurants started laying off workers. At least five restaurants have filed WARN notices with the Department of Labor, citing the governor’s restrictions as the reason for the layoff of staff.

Foot traffic in Manhattan’s most visited business districts has dropped off significantly since the pandemic began, putting a strain on small businesses and retailers. The number of inactive storefronts in Union Square and the Flatiron District, including those that were closed and vacant, rose 36%.

Activity was down 50% in the Flatiron District, Union Square and Chelsea, compared with February. That’s better than the spring, when foot traffic declined 75%, but is still lower than outer-borough neighborhoods where foot traffic has returned to pre-pandemic levels.

Uniqlo will close its store location at 31 West 34th Street. The clothing retailer will close its Midtown location on Feb. 28 and lay off 136 employees there due to economic reasons. The 64,000-square-foot store, across the street from the Empire State Building, was Uniqlo’s third U.S. location when it opened in 2011. Eight other locations across New York state will remain.

Before the pandemic, Union Square and the Flatiron District had plenty of people populating the streets, including residents, office workers and students from nearby universities. But since the onset of the pandemic when hundreds of thousands of people left Manhattan business and foot traffic has vanished.

Barneys will be back in Manhattan early next year. The luxury department store will open a location in a Saks Fifth Avenue flagship on the fifth floor of 611 Fifth Avenue.

J.C. Penney has been rescued from bankruptcy, but challenges remain for the retailer. The department store chain completed the sale of its retail operations to Simon Property Group and Brookfield Asset Management. J.C. Penney will be split into two: an operations firm led by Simon and Brookfield, and a property one that its lenders will control. The former is now out of Chapter 11 bankruptcy, while the latter will not be fully organized until next year.

Target is ramping up its stores in New York City, signing yet another lease. The big-box retailer signed a lease for over 27,000 square feet of space at 600 Broadway in Soho.

The pandemic has decimated much of the retail industry, but some businesses that have weathered the storm are now shopping for properties and new leases at deep discounts. Property owners have been feeling the economic pressure, and are offloading space for a fraction of the pre-pandemic price and offering lease incentives.

Related Companies has filed an emergency affirmation to collect $5.3 million in back rent from Hugo Boss, along with $700,000 in monthly rent, for the retailer’s store at Columbus Circle.

The Open Storefronts program, which allows stores to sell goods on the sidewalk in front of their location, has been extended by nine months. The initiative, which had been set to end Dec. 31, will now run through Sept. 30. However, it’s uncertain how much the program actually helps.

This year’s most lucrative retail leases look different from the usual Manhattan ones. Generally an apparel or beauty store appears at the top, or like last year a luxury retailer. But this year, big-box operators dominated the scene.

A few expensive leases continued to be signed with one on Madison Avenue and two on Fifth Avenue. There were also a fair number of renewals with major price tags. Bed Bath & Beyond renewed its lease at 620 Sixth Avenue for $6.9 million per year. Home Depot renewed at 40 West 23rd Street for $9 million annually. Chanel stayed at 139 Spring Street for $3.6 million.

Not just small businesses and mom-and-pops that are hurting in 2020, chain stores are also shuttering at a rapid rate. More than 1,000 chain stores across New York City, nearly one out of every seven, that were open this time last year have closed their doors over the past 12 months.

Building Sales:

Sales of commercial properties are down 49% for the year . It has led to a crippling decline in revenue for New York City, which depends on real estate taxes to keep the lights on. Revenue was down 42% for the first 11 months of the year compared with the same period last year.

Overall, foreign investment in U.S. commercial real estate totaled $42.8 billion in the 12-month period, down 46% year-over-year. The bulk of that drop was driven by a decline in Canadian investment.

Activity for New York’s mid-market investment sales between $10 million and $30 million slowed in the weeks before the end of the year. There were just five sales totaling $58.05 million.

Hotels:

The pandemic has upended every part of the hospitality industry, with travel restrictions, empty hotel rooms and lockdowns forcing restaurants and bars to severely limit occupancy. That’s left some hoteliers and restaurateurs trying out creative solutions: Turning empty rooms into private dining suites, where patrons pay a premium for a meal by a local eatery (or, in some cases, the hotel’s restaurant).

It’s estimated that hotel owners have seen about $46 billion in lost revenue, and many owners expect to close without federal aid.

The hotel industry is facing a staggering statistic: almost 1 billion empty hotel rooms for the year. As of last week, more than 962 million room nights have gone unsold.

The city is moving forward with plans to require special permits for all new hotels in an effort to curb projects that cause “conflicts or create nuisances.” It would apply to all zoning districts where hotel construction is permitted as-of-right, and would take the place of special permits already required in Midtown East, the Garment District and light manufacturing zones.
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