Manhattan office market’s 25% drop is ominous sign for landlords
Decline led to billion-dollar drop in property tax revenue
With offices shrinking in a post-Covid world, the world will never be the same for some landlords.
The market value of office towers in Manhattan has plummeted by 25 percent over the past year, the New York Times reported. This contributed to an estimated $1 billion drop in property tax revenue.
Major companies including JPMorgan Chase, Ford and Target are letting go of expensive office space, and they have plenty of company.
At the landmark Willis Tower in Chicago, United Airlines is giving up over 150,000 square feet, or 17 percent of its office space there. At 350 Mission Street in San Francisco, Salesforce will sublet 225,000 square feet, or half of its space.
In a letter to his company, JPMorgan CEO Jamie Dimon cited remote work’s impact on its decision to reduce space, saying it allows the company to “significantly reduce [its] need for real estate.” For every 100 employees, the bank would need about 60 seats, the Times reported.
But while companies whittle down their footprints, property owners — some of whom have stayed afloat thanks to rent coming in from long leases — may struggle to fill space once those deals expire.
About 17.3 percent of Manhattan office space is available for lease, the most in decades, the publication reported. Asking rents are at roughly $74 per square foot, down from $82 in early 2020, according to a report by commercial real estate advisory firm Newmark. Reports released in September, October, November, December, January and February showed a steady deterioration of the market.
Landlords’ profits could fall 15 percent as hybrid models allow employees to work from home for part of the week, credit rating agency Fitch Ratings predicts.
Still, some landlords point out that employees who do return to the office are going to need extra space to social-distance, the publication reported. Before Covid, the trend was for companies to shrink the square footage provided per employee.
[NYT] — Cordilia James