Armano Real Estate October Newsletter
The Market has Bottomed, but will the 20’s Roar?
| Greater New York’s office utilization rose to 28.1% in the week through Sept. 15, climbing for the first time above 25% during the pandemic and up from 19.5% in the first week of September, according to security firm Kastle Systems’ building keycard access swipe statistics. While New York’s rate is still below the 33.6% of Kastle’s 10-city average, its 8.7% jump was the largest among the markets monitored. Improvement aside, New York’s return-to-office pace is still far short of expectations amid concerns about the COVID-19 delta variant. The Partnership for New York City, a pro-business group, in a survey between Aug. 9 and Aug. 20, recently said major employers expected only 41% of office workers to return by Sept. 30, significantly below the 62% expected in a late May survey. The latest survey said 76% of employees are expected to return to the office by January, but that figure may turn out to be an optimistic projection if the pandemic lingers. And while usage is at a pandemic high, according to Kastle, it still means fewer than one in three potential office occupants are showing up in the New York City buildings. The availability rate is a measure of the supply side of the office market. Greater availability leads to lower rents. The New York office availability rate has not fundamentally changed during the third quarter according to market sources. This is positive, as the availability rate had been increasing since the pandemic’s onset. The explanation for the peaking of availability is that more companies are planning their near-term return and far fewer companies are choosing to sub-lease space or let their leases expire. Tenants are generally extending their leases. Most are taking advantage of weak market conditions and are keeping their existing footprint or expanding. A smaller number are shrinking their footprint.   Companies largely shed existing locations instead of leasing more office space at the onset of the pandemic leading to 33% year-over-year availability increases by the end of 2020. During the first half of 2021, the increase in availability continued, as COVID cases surged during the winter months. However, the increase slowed to an average of 9% by the end of the second quarter. Given that availability rates appear to now have peaked and are leveling off, it would appear we have hit a market bottom. Hiring, office usage and densification are measures of the demand side of the equation. The New York City Independent Budget Office is projecting 149,000 new jobs in 2022. Oxford Economics is projecting NYC GDP growth of 5.5% and a 4.4% increase in office employment in 2022. Armano expects most of these new positions will require some type of physical space away from the home. Thus, we expect a significant increase in office space demand. Furthermore, the trend of increasing densification has been reversed during COVID. Tenants are generally adapting office plans with more space per employee and more common meeting areas.  Furthermore, Armano Real Estate has seen a fundamental shift away from very short-term lease deals. Tenants are generally taking advantage of the weak market and moving forward with their space plans for the intermediate and long-term. Landlords are encouraging these deals and offering excellent incentives. The question as to whether the NYC market will “Roar in the 20’s†remains. Given the delays resulting from the Delta variant and weaker than expected return-to-office pace, 2021 will end short of a growl. However, given all the above factors, Armano expects that office space will be absorbed in 2022. We do not expect to see much in the way of price increases in the next six months given that the availability rate remains high. However, we expect office space availability to decrease as space comes off the market and we expect office space demand to increase fueled by economic activity. Thus, we believe that there is an excellent chance the market will substantially, or at least mildly, roar back in 2022. We, therefore, encourage tenants to proactively use this window of opportunity to engage the market and explore options to best reposition their corporate real estate. Please feel free to contact us regarding your current real estate situation. We can provide a no-fee lease analysis and a preliminary space program to help meet your back to work plan and corporate real estate vision. Please see the below link for recent news announcements and our newsletters: |
| Please see the below link for recent news announcements: In the News Please see the below links for NYC recovery index: NYC Economic Recovery Index Please see the below links for NYC COVID results: Positive COVID-19 Results by Region Please see the following link regarding HealthCheck360 COVID-19 Workplace Solutions: HealthCheck360 COVID-19 Workplace Solutions |
