October 2023 leasing activity totaled 1.96 million square feet of space, 8% ahead of the 5-year average according to market sources. The availability rate was flat from last month at 19.8% but it was up 50 basis points from a year ago. The average asking rent was $76.12 per RSF which was flat month to month.
These statistics support Armano Real Estate’s expectation of a stabilized market for the remainder of 2023.
The biggest news of November was the WeWork bankruptcy on November 6th. As of the first quarter of 2023, WeWork leased nearly 7 million square feet of office space in NYC, representing 61.4% of the coworking market according to market sources. WeWork’s footprint represents approximately 1.4% of Manhattan’s total inventory.
In a predictable, yet worrying sign for New York landlords, WeWork’s first move in bankruptcy was to start shedding unprofitable, “largely non-operational” leases. As part of the company’s move beyond bankruptcy, court documents reveal a list of nearly 70 leases WeWork plans to terminate – 35 of which are in New York City alone.
The WeWork bankruptcy will have the following effects on the office market.
- Vacancy and Availability Rates
Vacancy and availability rates will increase in many buildings in which WeWork occupies space. This could lead to lower-than-expected rental rates.
- Impact on Landlords
Landlords that heavily relied on WeWork as a tenant may face financial strain.
- Sentiment and Investor Confidence
WeWork’s struggles might impact investor confidence in shared office spaces or co-working models leading to a slowdown in development of such spaces.
- Reconfiguration of the Market
The bankruptcy could prompt a reevaluation of supply and demand for co-working spaces leading to a shift in market dynamics. Landlords might consider alternative leasing strategies. And tenants may reevaluate co-working models and space options.
- Market Opportunities
Vacant space that becomes available as a result of the bankruptcy may provide an opportunity for tenants to pick up space at favorable rates.
We expect the WeWork bankruptcy to have a limited to moderate impact on the Manhattan Office market. While WeWork’s footprint is large, it represents only a small fraction of the overall market (approximately 1.4%). Also, only a portion of the leases they hold are being rejected. Additionally, co-working tenants in buildings in which leases are being rejected can sign directly with landlords decreasing new supply.
Thus, we are not changing our thesis of a stable and recovering market. However, we do believe that the bankruptcy will lead to a tempered recovery outlook and will lead to more opportunities for tenants.
Tenants have a unique window of opportunity to take advantage of existing conditions. And it is increasingly important to have a trusted and unconflicted advisor to help navigate the market and create substantial economic value. Armano Real Estate can help your company maximize concession packages and occupancy cost savings.
Feel free to contact us regarding your current real estate situation. We can provide a no-fee lease review and analysis and a preliminary space program to help meet your hybrid work plans and corporate real estate vision.
Feel free to see additional resources related to the WeWork bankruptcy below.
More Landlords Chart Post-WeWork Path, Including A Residential Conversion (bisnow.com)
https://finance.yahoo.com/news/wework-18-billion-bankruptcy-last-203752692.html
