At a time when much of the U.S. was busy gearing up for the impact of the coronavirus outbreak, New York City was already living it. Not surprisingly, many New York City employers shifted their staff to remote work in the very early stages of the pandemic -- back when a dozen new cases a day were beginning to cause concern.
For the past year, remote work and safety concerns have kept workers across the country out of office buildings, and Manhattan has been no exception. But things may be picking up in New York City. So far in 2021, the number of new weekly requests from companies seeking out office space climbed 57% compared to the period of July of 2020 through November of 2020, according to commercial property data platform VTS. Not surprisingly, financial firms are fueling that demand, with most office space requests being centered on Midtown Manhattan.
Lower rents are driving demand
In February, average asking rents for Manhattan office buildings fell to $73.12 per square foot, the lowest level since March of 2018. It's therefore not at all surprising that some firms are trying to capitalize on the opportunity to lock in a Manhattan lease at a more attractive price point.
Once coronavirus vaccines become more widely available and more companies start calling workers back to the office, it won't be as easy to score New York City leases on the relative cheap. And so it makes sense that now's the time when companies are trying to lock in a deal -- before prices climb and the selection of available space dwindles down.
But while leasing activity may be up in Manhattan, a lot of companies are rethinking their office-space needs. In fact, those requesting leases are looking at 10% less square footage, on average, compared to their pre-pandemic footprints.
Tech firms are dumping even more square footage. A lot of tech companies are making plans to keep some workers remote on a long-term basis or approve a hybrid work model once the pandemic ends, so they're looking at 31% less space in their Manhattan leases, on average.
Still, even with companies leasing smaller spaces, Manhattan office landlords will take it. Office building REITs (real estate investment trusts) have taken a serious hit in the course of the pandemic. SL Green Realty (NYSE: SLG), for example, Manhattan's largest office building landlord, saw its shares lose more than one-third of its value in the course of the pandemic. This and similar REITs can benefit from an uptick in leasing activity.
That said, commercial property owners will need to proceed with caution when agreeing to discounted rents, especially in the context of longer-term leases. There's a good chance Manhattan office buildings will recover nicely once the pandemic comes to an end, and underselling that space could prove problematic from a revenue standpoint. Ultimately, right now, signing new Manhattan leases is a bit of a balancing act, but the fact that there's an increase in interest is certainly encouraging.