New York City’s new office construction has declined for seven consecutive quarters. Contributing to this slowdown is the fact lenders have grown more risk-averse regarding the office sector, with a lack of clarity about long-term tenant demand making it difficult for developers to secure construction financing.
Less than 250,000 square feet has broken ground thus far in 2024 as a result, according to CoStar. By comparison, about 500,000 square feet broke ground quarterly on average in 2023. Additionally, 10 million square feet of office space remains under construction, which is well below the 21 million square feet underway at the start of 2020.
This slowdown in construction is helping to relieve supply side pressure. According to CoStar data, the availability rate totals 17.8%, a 40-basis-point decline from this time last year. Five-star office buildings, typically categorized as buildings with modern infrastructure and luxury amenities, have seen the most notable declines in availability. Over the past year, the availability rate has declined by 170 basis points. Since the start of 2024, the availability rate has declined by 30 basis points, with five-star buildings experiencing the sole drop among all quality segments.
We are experiencing slow and steady increases in demand for office space and positive absorption for the first time since COVID with very little increase in new supply. Additionally, existing office supply is being reduced due to office to residential conversion and obsolescence. We are, therefore, at or close to market equilibrium.
Armano Real Estate expects office availability will continue to decrease and rents will rise. Furthermore, we expect decreases in availability in lower quality buildings as well as higher quality buildings in the future, thus translating to higher rents across all asset classes. In short, we are expecting a more favorable market for landlords going forward.
We, at Armano Real Estate provide corporate real estate solutions allowing clients to maximize occupancy cost savings and helping to meet their real estate goal and vision.
Most corporate brokerage firms represent both landlords and tenants. Conflicts of interest can arise when the same firm represents both landlords and tenants, potentially compromising the interests of one party to benefit the other.
Armano Real Estate focus is exclusively on the needs of the tenant. Negotiations are free from the influence of landlords allowing for maximum negotiation leverage and more favorable lease terms and economics. Our interests are aligned with yours. We are not about the landlord or about us. We are about you and your business.
It is increasingly important to have a trusted and unconflicted advisor to help navigate the market and create substantial economic value. Please feel free to reach out to us regarding a no-fee lease review or hybrid space consultation. We can provide the planning and resources necessary to achieve your corporate real estate goal and vision.
