The city’s office market is wearing a smaller shoe size due to the pandemic — but the footprint shrank by much less than was feared.
The 100 largest New York City office tenants slashed their space by only 7.4 percent since the start of the pandemic, according to a new survey by leading brokerage CBRE.
Some brokers and analysts had predicted space cuts by now of up to 25 percent in the Big Apple’s half-billion square feet of offices after the pandemic took hold in April 2020.
Stamford, Conn.-based real estate investment firm Land & Buildings in May of that year forecast an “existential hurricane” that would devastate the Manhattan market.
But the unexpectedly modest reductions tracked by CBRE, combined with robust large-scale leasing in recent months, suggest that the much-feared work-from-home phenomenon has not crippled the market — at least not yet.
“The largest 100 occupiers represent one-third of all Manhattan office space,” CBRE dealmaker Paul Myers told The Post. “And the largest users drive the entire market.”
“We don’t have all the stats yet, but I actually think that smaller companies are expanding more than the large ones,” Myers said.
Myers said it was too early to tell what effect the new Omicron variant would have on office leasing, but said he was “hopeful” it “will be even smaller than the minimal effect from the Delta variant.”
Developer-landlord William Rudin, whose family-owned empire controls tens of millions of square feet of Manhattan and Brooklyn office space, said, “I’m not surprised” to hear about the report’s findings, which he had not yet seen.
“We see strong demand and leasing activity across our portfolio, including at Dock 72 [at the Brooklyn Navy Yard]. I think this report will validate what we’ve been seeing.”
Prospective tenants have been enthusiastically touring 80 Pine St. and Three Times Square, two Rudin properties that are vacant, and deals are likely to be inked soon, Rudin said.
CBRE previously reported that third-quarter leasing was the strongest since the pandemic’s onset. The 3Q total of 5.88 million square feet jumped 70 percent over 2Q, chipping into still-high availability.
Helping to offset contractions by companies such as Advance, which owns Condé Nast, were expansions by Facebook and Blackstone.
Jumbo new leases of at least 100,000 square feet each were signed this year for Turner Construction at The Spiral, Chubb Group at 550 Madison Ave., law firm Venable at OneFiveOne (formerly Four Times Square), Mintz, Levin Cohn at 919 Third Ave. and Schrodinger Inc. at 1540 Broadway. In February, Suntory signed for 100,000 square feet at 11 Madison Ave.
“Not exactly a market on its last legs, is it?” mused one famously press-shy landlord.
More jumbos are in the works. Sources said that real estate brokerage Cushman & Wakefield, a chief competitor of CBRE, is “circling” 660 Fifth Ave. for up to 250,000 square feet for its own use. Meanwhile, Amazon, Facebook and Two Sigma are said to be “trading offers” at One Madison Ave. and several more leases are being negotiated at 550 Madison.
Average asking rents trickled downward to $76.89 percent, off 4.4 percent since the end of 2019, CBRE said. But, “The market is so nuanced that average asking rents don’t really tell the story,” Myers said.
Myers said that in February 2020, 135 large firms were in the market for 16.5 million square feet in Manhattan. The number plummeted to four million square feet once the virus took hold, “But it’s now back to more than 16 million square feet” although the number of companies on the prowl is down to 102.
Not surprisingly, the most modern buildings and fully-redesigned older ones are seeing the most demand. “Our Better Buildings category, representing 24 percent of the Manhattan office stock, has attracted 62 percent of the leasing activity year-to-date,” Myers said.
Myers was confident that the trend would hold up even as companies and employees continue to delay their office returns.
“I’m Zoom-fatigued myself,” he said. “More companies will come to realize that they need their senior and mid-level staff in the office.”
The CBRE report also noted that even if workers spend 25 percent less time in offices than they did before the pandemic, “This still means that most office workers will be in the office most of the time.”
Major JLL dealmaker Mitchell Konsker, who like Rudin hadn’t yet read the CBRE report, noted that the “full brunt” of WFH isn’t known yet — but both landlords and tenants are adapting to the uncertainty.
Konsker said, “The true sizing of corporate America can’t yet be fully evaluated” while large numbers of people continue to work from home.
But he said landlords have played a helpful role in “providing tenants with flexibility [in new leases] for expansion or contraction” depending on where the dust settles in the next few years.
“The short-term expansion and contraction options creates flexibility to accommodate whatever the situation is when everyone gets back.”