Office deals have been slimming down in recent years, with more incredible shrinking acts likely to come.
Tenants across the country are taking 14 percent less space on average compared to before the pandemic, Crain’s reported. The figure was determined by JPMorgan Chase after interviews with officials at Newmark.
Beyond the waning new office lease footprints, which JPMorgan described as “sobering,” a majority of the leases signed before 2020 haven’t come up for renewal yet. Some of those tenants will surely reduce or eliminate their office portfolios once leasing decisions arrive, which will likely keep office vacancies elevated.
Vacancy rates are elevated by seven percentage points above what they otherwise would be due to these headwinds in the office market. Availability rates are shattering records across the nation, such as Manhattan’s first quarter availability rate of 18 percent.
In the first quarter, net absorption declined across the country. It was negative 15.5 million square feet, compared to negative 8.9 million in the previous quarter.
While the data is national, officials said the situation is similar in New York. The series of smaller deals echoes a sentiment expressed by Two Trees’ Jed Walentas at TRD’s New York Real Estate Forum last month.
Walentas argued some of the sector’s struggles were caused by lazy corporate executives who allowed middle managers to continually add to their office footprint in hopes of future growth. Now, companies are ditching that space.
“There was tremendous bloat,” said Walentas. “It will take a couple of years for all that shit to go away.”
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In the Big Apple, effective rents are down by as much as 20 percent for non-trophy office buildings, according to Newmark, taking tenant improvements and under concessions into consideration. Estimates pin concessions at 70 percent above pre-pandemic levels, often including more than a dozen months of free rent.
A JPMorgan analyst deemed Newmark’s assessment of the office market darker than improvements relayed through anecdotes and other recent data.
While tech tenants have been in retreat in recent years, officials from SL Green have noticed rising demand from the sector once again. Known demand from tech tenants has almost doubled from a year earlier, company officials claimed, as Amazon and Apple join the ranks of those hunting for space.