As its CEO's comments clearly show, SL Green Realty is weathering the current storm in the NYC office real estate market reasonably well. That's due in part to its office portfolio's strength and focus on leasing its space to high-quality tenants.
Office demand isn't drying up
One of the few concerns was occupancy, which Holliday noted had "dipped, but finished the quarter above 94%." That's because it only leased 187,000 square feet of Manhattan office space during the quarter, "slightly less than we had hoped for."
However, on a more positive note, Holliday said: "The pipeline looks very good at 825,000 square feet of leases and term sheets pending or in negotiation. So that pipeline number has actually increased." While the company won't close on all those deals, it's on track to lease nearly 1.2 million square feet this year and reach the lofty goal it set during the height of the pandemic in the city.
Steve Durels, SL Green's executive vice president and director of leasing and real property, went into more detail on the current leasing pipeline during the call. He noted 51% are new transactions, and 49% are renewals. Further, he said these are "heavily weighted by legal, financial, and publishing industries."
One insight we can glean from these comments is that some industries have found they can't easily work remotely. Legal, financial, and publishing companies need office space because they thrive on collaboration. Further, legal and financial tenants require private, secure office space due to the nature of that work.
While those sectors have been the first movers to lease office space amid the pandemic, others might not be too far behind. Durels noted later in the call that some tenants have done a 180-degree shift on their view of remote work. He said there's now "a constant barrage of discussions with tenants who continually express frustration about being at home, the isolation of being at home, the inefficiency of working from home." So SL Green is optimistic its pipeline will increase as we get closer to putting the pandemic in the rearview mirror.
Rumors of NYC's demise seem greatly exaggerated
There's a lot of uncertainty in the office real estate market, especially in high-cost urban core areas like Manhattan. However, SL Green Realty is seeing some signs of life in this market, as most existing tenants are paying their rent and its leasing pipeline is expanding. Because of that, and the growing frustrations some companies are having with working from home, it doesn't seem this trend will crush the Manhattan office sector.