market research

October 2020

October 2020 New York Commercial Real Estate Market Report

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Manhattan Office:
Manhattan landlords are not letting viable tenants leave the table by offering increased free rent, more work allowance and better pricing. This trend will continue as more sublease space comes on the market.

Manhattan Retail:
National, regional and local stores continue to close due to Covid. More store closings are expected once the courts allow evictions for non paying commercial tenants in New York City. Even more restaurants are expected to close, as outdoor dining and 25% indoor capacity will only guarantee losses once the weather cools or rains.

Building Sales:
Covid has affected both building sale prices and sale volumes. Hotels and retail are expected to price 25% below pre covid prices. Office building values are lower by 10-20% depending on tenant lease term, rent and tenant credit.

New York Market Overview

Manhattan Office:

Manhattan’s office real estate market weakened in August, as leasing volume was down 21% from a year ago. Manhattan’s leasing volume was 1.3 million square feet in August, down by 20.7% from 1.64 million a year ago. The vacancy rate for Manhattan office hit a seven-year high, as sublease space and new construction came onto the market.

Average asking rent was $78.01 in August, down by 2.5% from a year ago.

Manhattan’s availability rate in August jumped by 0.8% points from July to 11.8%, the highest since 2013. The rate is 2.1% points higher than a year ago. The spike resulted partly from net sublet availability increasing by 1.31 million square feet for the month.

Manhattan office sublease space has now reached 25% of total availability in Manhattan and is likely to reach 30% by the year’s end. 1.1 million square feet of sublease space came into the Manhattan market. 1.4 million square feet came on the market in July and 1.6 million in August came on the market.

After employees worked remotely, there has been limited enthusiasm to return to the office, despite appeals from landlords. Many companies are permitting remote working to continue for the next 6 months to a year and are subleasing or not renewing a portion of their office space.

Office landlords have been forced to give discounts and other incentives to convince companies to sign leases. Manhattan’s office market started to show signs of a price decline in July.
Office tenants are trying to negotiate shorter and more flexible lease terms as they gauge what their office needs might be in a post-Covid era.

Manhattan Retail:

A wave of retail evictions among big tenants and small businesses is expected to flood in as courts reopen and eviction moratoriums across the country expire.

Almost 30 retailers filed for bankruptcy, leading to almost 6,000 store closures.

Retail landlords have been trying to negotiate lease modifications and rent breaks with tenants but talks that reached a stalemate may soon end in litigation.

The New York City Business Improvement District Association has asked the mayor to sign an executive order allowing shops to use sidewalks to sell goods. The group asked that stores be permitted to post more signage as well.

87% of New York City restaurants could not pay their full August rent. 64% of restaurants across believe they could close by the end of the year. Some 40% of landlords have waived rent. Of those, 43% had half of their rent waived, and nearly 40% have had rent deferred. A smaller percentage have been able to renegotiate their leases: 15% say they already have, while another 28% are currently in good faith negotiations.

19% of restaurants remain closed, either temporarily or permanently, because of a lack of business. Indoor dining was banned statewide in late March and is now allowed at 25% capacity, Business is expected to get even worse as the temperature drops. In the city, some restaurants have come together to sue the city and the state, in an effort to lift indoor dining restrictions.

Buildings Sales:

Commercial properties such as hotels and malls have lost as much as a quarter of their value as the pandemic devastated the retail and hospitality businesses, along with other sectors. The value of the collateral for commercial mortgage-backed securities has been written down by 27% on average when properties get into trouble.

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