The era of sweetheart pandemic office leases may be in the rearview mirror. And companies looking for space in the next few years may be in for a surprise.
That was the take from top CBRE broker Mary Ann Tighe, who said the dearth of new office construction is shifting the balance of power between tenants and landlords.
“If you are a tenant of 100,000 square feet or greater, you should’ve done your deal already. By the time we get to ’27, you’re going to have a problem,” Tighe said on an episode of CBRE’s “Weekly Take” podcast.
There are 2.4 million square feet of office space planned in Manhattan at projects like RXR and TF Cornerstone’s 175 Park Avenue and Vornado and Rudin’s 350 Park Avenue. But Tighe said 79 percent of that space is already leased.
She expects the balance to be spoken for by the time the buildings open. At that point, she predicted, the city will be desperate for new supply.
“The market’s going to need it like it needs oxygen,” she said.
There is plenty of vacant space in Manhattan’s 600 million square feet of office space, but much of it is in aging buildings that hold no interest for tenants seeking modern, Class A digs.
Manhattan office leasing is on track to surpass 30 million square feet by year’s end for the first time in five years, exceeding the five- and 10-year averages, according to a third-quarter report by Colliers International. In the last year before Covid, 2019, leasing totaled 43 million square feet.
The overall availability rate is north of 17 percent — well above the 10 percent threshold that traditionally marks the difference between a market that favors either landlords or tenants.
But Tighe noted that in the hottest submarkets like Park Avenue, the availability rate is already low enough that landlords are pushing rents higher.
The top dealmaker even dished some details on some of her firm’s biggest leases.
“The market’s going to need [new space] like it needs oxygen”
Take Chinese firm TikTok’s 2020 lease for 232,000 square feet at the Durst Organization’s One Five One building — formerly known as 4 Times Square.
Ever wonder why Durst changed the name?
“Four is the ‘death’ number in Chinese and TikTok said they wouldn’t do the lease unless the building name was changed,” Tighe explained.
And before JP Morgan decided to tear down its headquarters at 270 Park Avenue and build a towering new home, the bank had been in discussions with Marc Holliday’s SL Green to buy One Vanderbilt.
Tighe said the sticking point was the tower’s planned observation deck. JP Morgan would have had to pay SL Green for the revenue lost by not having a deck, which was expected to generate around $15 million annually. (The deck has been surprisingly popular. Tighe said it brought in more than $70 million its first year.)
“The reason the deal never came together is that JP Morgan Chase didn’t want an observatory,” she explained. “And didn’t want to pay for what Marc saw as the lost revenue by not doing the observatory.”
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7M sf of Manhattan office space have disappeared. Here’s how