It was the worst of times, but now the industry is hoping for the best of times.
After an upside-down year of stalled investments, renegotiations of office leases, low residential rent collections and mixed results for retail (grocery and convenience stores thrived, while mom-and-pop shops and restaurants went belly up), the real estate industry is focused on making commercial spaces inviting for employees and customers.
“The operative word is ‘optimism,’ ” said James Whelan, president of the Real Estate Board of New York (REBNY). “There is a real sense that things are heading in the right direction.”
Indeed, REBNY just released its overall real estate broker confidence index for the first quarter of 2021. It came in at 6.66 out of 10, a 53% increase since the end of December.
“The panic has disappeared,” said Ira Schuman, a vice chairman with tenant-rep brokerage Savills.
In May, Colliers reported that in Manhattan alone, office leasing increased by 56.1% compared to April and 8.2% year-over-year.
Still, availability hit a new record-high of 17.1% and since March of 2020, availability has grown by 70.2% to 91.64 million square feet.
That’s because commercial office users turned tail, gave up spaces and worked out of their homes while new Class A buildings were added to the marketplace.
CBRE said sublease availability was 4.8% in May, with sublease average asking rents down 9% from one year ago to $58.89 per foot.
Overall, average asking rents were $76 per foot, down 7%, year-over-year.
“We adjusted our pricing and continue to move forward,” said Gregg Schenker, president of ABS Partners. “The fact that New York will become a less expensive city is very good for New York.”
For now, Colliers’ tristate president Michael Cohen sees “value shoppers” seeking office space.
“The momentum is going to build but we may not see the deals close in ‘21 because many have leases that expire in ‘23 and ’24.”
Jimmy Kuhn, president of Newmark, added that tenants are seeking Class A office space in new developments like Hudson Yards, One Vanderbilt and the World Trade Center.
But owners and companies will have to add some va-va-voom to get people back in their office seats. Peter Riguardi, chairman of JLL, points to his client Deutsche Bank’s new headquarters at Columbus Circle, renamed the “Deutsche Bank Center.” The previous occupant, Time Warner, had a labyrinth of offices and workstations.
“That is from another generation — this is a whole new world,” said Riguardi of the financial firm’s revamped open offices with amenity spaces, high ceilings and outdoor spaces. “This is the model of the future. It will attract people back to the office.”
Recent large leases include, St. Francis College, which will will move to a 255,091-square-foot contemporary campus at the Wheeler, a 10-story project developed by Tishman Speyer on top of the Macy’s in downtown Brooklyn that includes 5,000 feet of outdoor space.
A similar 30-year synthetic lease for Legal Aid in an office condominium at 40 Worth St. will allow that firm to consolidate in 198,900 square feet and avoid real estate taxes.
At 200 Park Ave., where CBRE has its headquarters, the owners, Tishman Speyer and Irvine Company are installing new restaurants, bars and retail.
Retail leases are mostly focused on health, including pet health, dental, and medical, said Annette Healey, executive vice president of CBRE.
For instance, HealthQuarters, a medical facility, recently signed a 25,000-square-foot lease at Renaissance Properties’ 166 Crosby St., which recently unveiled a renovated lobby.
At the same time, the stalled office sales market is rumbling to life.
Marketed by CBRE, both 360 Park Ave. South and 635-641 Sixth Ave. are being sold for $325 million to Boston Properties and Spear Street Capital, respectively.
“What’s selling are opportunistic deals,” said Adelaide Polsinelli, vice chairman of Compass who sold 604 Fifth Ave. for the Riese Organization for $45 million. “[They] are buying at the lowest point in a 10-year cycle.”