The Daily Dirt: The worst is yet to come for NYC office

The U.S. office market hit a new low last month, with vacancy reaching 19.8 percent for the quarter, a record high. Meanwhile, New York’s office stock is hardly doing any better. 

Manhattan’s availability rate was 18.1 percent in March, according to Colliers. That’s 0.1 percent better than the February number, but a record high for the end of a quarter. (Important note: availability rate and vacancy rate measure slightly different things. The availability rate figure is typically higher.)

Anecdotally, it can feel like the office market is rebounding some. But the numbers tell a different story.

In the aftermath of the pandemic, the office market experienced its most significant blows, with vacancies soaring and leasing activity plummeting from Q2 of 2020 through Q1 of 2022. Over the last four years, available supply has increased by 81.6 percent, reaching nearly 98 million square feet. Over the past two years, it’s up by less than 5 percent. 

That number would be far worse if not for the millions of square feet of Manhattan office that has instead been earmarked for residential conversion. Office availability on Third Avenue improved by almost five percent in the fourth quarter, largely thanks to SL Green taking 750 Third off the market as it planned a conversion. 

Just this week, InterVest Capital Partners announced it was considering a conversion at 111 Wall Street. The 1.2 million square foot tower is entirely empty, though technically it was not available because of planned renovations. 

Meanwhile, the market could be in for another shock as Amazon, one of the nation’s largest office tenants, considers downsizing its footprint. And other tech companies are expected to rightsize their office footprints this year, too, according to a JLL report. 

As discussed in previous editions of The Daily Dirt, there are pockets of strength within those numbers, mostly depending on the asset class, age and location. But, for the most part, things are still headed in the wrong direction. 

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What we’re thinking about: A city report from 2023 predicted that New York’s office market wouldn’t reach sub-19 percent vacancy until 2026, hinting that the bottom may be about two years away. When do you think the market will turn around? Send a note to david.westenhaver@therealdeal.com.

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Closing Time

Residential: The priciest residential sale on Friday was $28 million for a 6,000-square-foot townhouse at 15 Bank Street in the West Village. The Deborah Grubman Team from The Corcoran Group had the listing. 

Commercial: The most expensive commercial sale of the day was $13.2 million for a 52,000-square-foot, 72-unit apartment building at 34-50 28th Street in Long Island City. 

New to the Market

The highest price for a residential property hitting the market was $38.5 million for a 7,100-square-foot condominium unit at One Madison, 23 East 22nd Street, Flatiron. Kyle Blackmon of Compass has the listing. 

— Matthew Elo

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A thing we’ve learned: The shortest war in history lasted just 38 minutes. It was the Anglo-Zanzibar War, which occurred on the morning of August 27, 1896. The British Empire launched an attack on the Sultanate of Zanzibar due to a disagreement over the succession for the sultan. British bombardment quickly overwhelmed the Sultan’s forces, leading to the speedy treaty.

Elsewhere in New York

— A magnitude-4.8 earthquake hit the northeast on Friday morning. The quake’s epicenter was in Lebanon, New Jersey, but its tremors could be felt from Philadelphia to Boston and in all five boroughs. The earthquake was not large enough to pose any serious threats to the city’s infrastructure, and Mayor Eric Adams suggested that “New Yorkers should go about their normal day.”

—  Federal authorities investigating Mayor Eric Adams’ campaign fundraising are now looking into a free seat upgrade that Adams received from Turkish Airlines, New York Times reported. The scrutiny is part of a broader corruption inquiry, which has included searches of properties owned by several of Adams’ aides. Allegations include potential funneling of foreign money and influence regarding Turkey’s consulate in Manhattan.

— The MTA is looking for a “master lessor” to manage 25,000 feet of retail space beneath the Long Island Rail Road’s new East Midtown hub at Grand Central. Retailers had been hesitant to take up space at the underground station earlier in the post-Covid world, but healthy transit use numbers have been an encouragement to the MTA, The Villager reported. The space includes 32 separate retail units.