A tale of two office markets is unfolding in Manhattan as a growing number of tenants ditch older spaces for newer or recently renovated buildings.
More than 76 percent of office occupants who have moved in Manhattan since the start of the pandemic have either gone from one Class A property to another or upgraded to a Class A building from a Class B one, according to an analysis by CompStak.
Tenants in the technology, advertising, media and information sectors in particular are increasingly upgrading to newer spaces, CompStak found. While 37 percent of companies in those fields moved between Class A buildings during the pandemic, another 27 percent have moved up from Class B to Class A spaces. All told, 65 percent of TAMI occupants moved to a building that was newer than their previous location, with an average age difference of 40 years.
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The largest share of relocations during the pandemic, 46 percent, came from tenants in the financial, insurance, real estate and legal sectors. While these tenants typically occupied Class A buildings before the pandemic, about 64 percent of their moves were similarly to newer buildings newer than their previous locations, also by an average of 40 years, according to CompStak.
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Nearly a third of all relocations since the onset of the pandemic have been to office buildings that were constructed or renovated since 2015. Some of the largest by TAMI tenants over the past year include IBM taking 328,000 square feet at SL Green’s One Madison Avenue and Roku signing on for 240,000 square feet at RXR Realty’s 5 Times Square.
Not all relocations have been aimed at reducing or consolidating space, either. Among leases larger than 75,000 square feet, exactly half of office tenants who moved during the pandemic increased their footprints, CompStak found. Forty-two percent downsized to smaller spaces, while the remaining 8 percent moved to similarly sized offices.
Asking rents for Class A space in Manhattan averaged $81.51 per square foot in the fourth quarter, up from $81.41 a year ago and down just 3 percent from the $84.05 recorded at the end of 2019. Asking rents, however, do not reflect the effective rent paid by tenants after factoring in concessions.
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