Some large new Manhattan office-lease signings this year seemed to bode well for the pandemic-battered commercial market. IBM at One Madison Avenue! Tiffany at 200 Fifth Avenue! HSBC at The Spiral aka 66 Hudson Blvd. — for a combined total of about 900,000 square feet at high rents in high-profile new or redesigned buildings.
But there’s a shadow over the deals as well. All of them were for much less space than the companies had previously, a trend that Wharton Property Advisors president Ruth Colp-Haber views as portending a “major macroeconomic reset” looming in the office market.
Even as JP Morgan Chase’s new, supertall headquarters tower rises at 270 Park Ave., the bank chopped its Manhattan footprint by 400,000 square feet in 2021 following a 300,000 square-foot haircut in 2020. CEO Jamie Dimon has suggested that more “consolidation” is in the cards.
Most landlords and brokers downplay the threat. They routinely cite positive data such as a large first-quarter increase in leasing volume over the first quarter of 2021 and a gradual reduction in sublease availability. Growth by tech firms such as Facebook and Roku give reason to be bullish. New and redeveloped towers from Related Companies, SL Green, Tishman Speyer and the Durst Organization continue to draw high-paying tenants.
But since we often give the optimists a platform to cheerlead — and this column has some times joined in the cheerleading — we’ll turn the mic over to a dissenting view this week.
“When companies move, attention is rightly called to the exciting new lease the tenant has signed and its new building,” Colp-Haber told Realty Check. “But we need to keep our eye on the big picture, which is to compare the total square footage before and after the move.
“Given the trend toward hybrid work and 37 percent office attendance, the key question is, what is the net effect of that move?”
Even so, Colp-Haber says, “The trend is clear. With office vacancy rates now over 20 percent, the secular [long-term] bear market in rents is well underway with the exception of trophy buildings. This will continue for several years unless there is a dramatic change in the shift to remote work.
“It’s a simple matter of supply and demand — too much office space supply and not enough demand.”