As confidence grows, more office tenants shun short-term renewals
But leasing activity remains low compared to before the pandemic
In the depth of the pandemic last year, a majority of New York City office tenants facing lease expirations didn’t want to commit to a long-term deal. Instead, they opted for shorter extensions.
The number of short-term renewals — defined as a deal shorter than five years — was up 46 percent in 2020 compared to the year before, according to a CBRE market report. But in recent months, as more New Yorkers got vaccinated, the pace of short-term renewals has slowed.
“While some tenants, particularly smaller organizations, may continue to pursue short-term deals in the near future, the wait-and-see attitude that launched the trend does appear to be passing,” the report stated.
Between April and December last year, 54 percent of all lease renewals larger than 15,000 square feet were shorter than five years, according to the report. That’s quite a change from the pre-pandemic period between January 2019 to March 2020 when the share of short-term deals was just 21 percent.
Short-term renewals signed in the later part of the year included NBCUniversal’s 340,000-square-foot deal at 1221 Sixth Avenue, and Stroock & Stroock & Lavan’s 191,000-square-foot lease at 180 Maiden Lane, according to CBRE. The exact lengths of these renewals were not available.
But the short-term renewal trend has started to shift in recent months as the pandemic waned and various restrictions were lifted. The share of short-term deals among all renewals dropped to 32 percent in the period from January to May this year.
Still, uncertainty clouds the future of the city’s office real estate market.
Only 51 new office leases and expansions larger than 15,000 square feet were signed in the first five months of this year, or 10.2 deals a month, according to CBRE. In 2019 the monthly average was 25.6. The average deal size is also shrinking, from about 60,000 square feet in 2019 to 42,000 square feet so far this year.