New York City office
and retail Market Research

May 2021

May 2021 New York Commercial Real Estate Market Report

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Office:
The average term of leases signed in the first quarter was 5.8 years, with 6.9 months of free rent and a tenant improvement allowance of $61.90 per square foot.

About 17.3% of Manhattan office space is available for lease, the most in decades. Asking rents are at roughly $74 per square foot, down from $82 in early 2020. In April Office occupancy rate for Manhattan offices was about 13.5%. Only about 45% of employees will be back in offices by September. 56% of employers said that their employees will work remotely at least some of the time.

Retail:
There are 32 vacant storefronts along 17 blocks of Fifth Avenue in the Midtown area, which is some of the most expensive retail real estate in the world.

Retail leasing velocity in the first quarter of 2021 fell for the seventh consecutive quarter. Total leasing was down 26.3% from the previous quarter, and nearly 59% from a year prior, before Covid lockdowns took hold of the city.

Buildings Sales:
Office investment sales remained “largely halted” in the first quarter, with only $400 million in total sales. That’s a decrease of nearly 90% compared to the first quarter of 2020, when $3.8 billion in deals was recorded.

New York Market Overview

Office:

By September, more than 50% expect to be back in the office and an additional 24% back by the fourth quarter, while just 11% wouldn’t return until the first quarter of 2022.

Fewer people working in the office could mean smaller offices: 47% would need less space. Yet, future office sizes could also be affected by added emphasis on collaboration spaces, whether they are conference rooms or informal breakout areas.

Office availability hit 16.1% in the first quarter of 2020, the highest number on record.

The average asking rent was $73.23 per square foot, down 7.6% from a year ago, and down 1.6% from the fourth quarter of 2020. That’s the lowest it’s been since 2018.

Leasing volume in the first quarter was 4.6 million square feet, down by 36% compared to the same period last year, but up 9.4% compared to the fourth quarter of 2020. That improvement, however, was not enough to counterbalance the supply increase: Negative net absorption was nearly 11 million square feet in the first quarter, or 365,000 square feet less than that at the end of 2020.

The borough’s subtlet availability increased by 2.91 million square feet during the first quarter, bringing the total share of space available for sublease to 24.5%.

72% of workers would rather work from home more regularly, and 66% want to move to a hybrid model that lets them work at home or from coworking spaces.

The New York Blood Center is working with developer Longfellow Real Estate Partners to seek a rezoning that would allow it to replace its current, three-story headquarters at 310 East 67th Street with a 334-foot building.

Hongkun USA is being sued by Vornado for $1.1 million in back rent at 888 Seventh Avenue.

Empire State College has signed a 10-year lease for 29,747-square-foot of space at 4 Park Avenue and relocating from 325 Hudson Street, where it leases 55,000 square feet for its Metropolitan regional administrative office and the School of Labor Studies.

Some companies are making plans to get employees back in offices as more Covid-19 vaccines become available. Google employees will now be allowed to return to the office.

Boston Properties is moving forward with its plans to replace the MTA’s old headquarters at 341-347 Madison Avenue, as well as three adjacent MTA-owned lots with a skyscraper that could rise to 1,050 feet. Boston Properties has filed a land use application with the Department of City Planning.

Doctors and medical professionals have remained on time with their rent payments in the past year. While some tenants have paid less than 85% of rent collections, medical professionals have paid 95% of rent owed. Despite in-person visits falling 60% early on in the pandemic, telemedicine appointments accounted for just over 8% of visits in December, indicating that patients are going back to offices.

The Howard Hughes Corporation obtained approval from the Landmarks Preservation Commission for South Street Seaport tower proposal and will 160-foot-tall structure, 120 feet as-of-right plus an additional 40 feet permitted in a flood zone.

Landlords are giving tenants discounts of up to 13% compared to rents in the first quarter of 2020. Firms are also looking at an average of about 10% less space than they were looking at in the first quarter of 2020.

Landlords are willing to offer rent breaks to prevent vacancies. These rent discounts could lead to lower valuations of office buildings in major cities. Over 45% of the tenants negotiating with landlords are seeking to make commitments of at least seven years, up from 34% in 2019.

Tech firms leased about 26 million square feet in 2020, 17% of total office leases. Tech has led office leasing since 2013.

Rudin Management will give 3 Times Square a $25 million makeover and the entire office space of 885,000-square-foot building is available.

Retail:

Total retail leasing dropped by nearly 59% in the first quarter of 2021 from a year prior.

An all-time high of 275 retail spaces were vacant in the first quarter, an increase of 4.2% from the 264 recorded at the end of 2020.

Average retail asking rents declined. The average asking rent hit $618 per square foot, a 5.1% decline from the fourth quarter of 2020 and a 13.4% drop from the prior year.

Manhattan retailers are waiting for the return of tourists to 5th Avenue and employees to Midtown offices. Some retail corridors outside of the central business district have seen metrics return, almost to where they were before the pandemic. Vacancies and rents in the Bronx’s main retail area, Fordham Road, are near normal. The vacancy rate is 3%.

Restaurants are reopening at greater capacities, more people are getting the Covid-19 vaccine and spurred by cheap rents, new leases are being signed.

In Times Square, average rents dropped 21.5% year-over-year, from $1,647 per square foot to $1,293. Jollibee and Taco Bell Cantina have taken advantage of those discounts.

Del Posto will close permanently and a similar eatery will open in its place.

New York City’s live music scene went silent are reluctant to open even with loosened restrictions. The state gave permission for small and medium indoor arts venues to reopen on April 2, at one-third capacity with a maximum of 100 people. Some managers claim these restrictions make it impossible to turn a profit and are keeping their doors closed.

Dollar General plans to open 1,050 new stores this year, an increase from 2020 when it opened 1,000 new stores and 1,670 were remodeled.

JX, the parent company of TJ Maxx and Marshalls, will open 81 stores across its brands in 2021. Dollar Tree plans to add 600 stores this year.

McDonald’s is planning to close hundreds of its eateries in Walmart stores by the end of the summer.

The clothing store AllSaints has not paid rent at its 11,862-square-foot space at 415 West 13th Street since March 2020. As a result, the property’s valuation fell by over 70% to $13 million from nearly $50 million in 2016.

Asking rents along Prince Street in Soho dipped by 39.5% year-over-year, from $683 per square foot to $414.

Jokr, a new delivery startup, plans to turn as many as 100 storefront locations in New York into micro-fulfillment centers. Joker promises that it can deliver items that people use all the time to customers within 15 minutes.

A new lawsuit seeks to halt the rezoning of Soho and Noho, alleging that the mayor is exploiting the pandemic before his term expires in December. The changes would affect 56 blocks across those neighborhoods, eliminating restrictions that permit only light manufacturing use on ground floors and pave the way for 2 million square feet of new residential space.

A new bill seeks to reform the lease renewal process for retailers by giving businesses the opportunity to extend their leases, regardless of what their landlord says. If a landlord fails to give a tenant the required notice, the amount they can raise rent during that one-year extension can drop to as low as 7%.

Domestic retail visits in the New York City area nearly returned to pre-pandemic levels during the week of March 29, down just 2% compared to the same period in 2019. That’s the strongest weekly result since the onset of the pandemic.

Hotels:

New hotel construction in Manhattan is relatively robust. More than 21,000 hotel rooms are under construction in New York City.

Manhattan’s Hotel Pennsylvania plans to permanently close and raze the hotel to create a premier development site. Most recently, Vornado wants to build a 1,200-foot skyscraper with the name PENN 15.

Solil Management, which owns the land under the hotel, wants to terminate RFR’s long-term lease and collect the $79.5 million it’s owed under the terms of the deal. RFR owns the hotel itself but pays Solil more than $5 million a year to lease the land.

Hotel occupancy in the city hit its highest level, 47% since last June during the week ending March 13. However, the number does not take into account the many hotels that have closed, some permanently.

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