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<\/a>New York City skyline. Image by ben o’bro via unspash.com<\/p><\/div>\n
JLL Chairman & President Peter Riguardi said leasing activity was brisk this year for the top half of Manhattan\u2019s office market. Rental rates have increased in the city\u2019s trophy buildings and other Class A and premium spaces, but they have been flat elsewhere.<\/p>\n
Although many real estate industry players are still trying to determine the full impact of COVID-19 on the city\u2019s office market, Riguardi said it’s led to a substantial flight of occupants across industries to Manhattan\u2019s better office buildings.<\/p>\n
\u201cPeople are willing to pay up for space in buildings that are highly amenitized, offer fresh air and maintain a high standard of health and wellness,\u201d Riguardi told CPE. Meanwhile, Manhattan\u2019s older office buildings face the most challenges of all the city\u2019s office product, and they are also the properties seeing the highest vacancies.<\/p>\n
The pandemic taught the real estate market that working from home was technologically possible and scalable, allowing industries to adjust to how people work going forward. Many in technology and back-office operations are primarily working from home, while investment bankers and traders will likely end up working in the office as much as they did before the pandemic.<\/p>\n
Riguardi believes 2022 will be a strong year with a high velocity of leases signed, and that will help building owners absorb a substantial amount of their vacant office space. He expects to see continued expansion of the tech industry, which was responsible for many of the largest deals in New York this year. Google, Microsoft and Verizon are among the tech firms that have completed large leases<\/a> or purchases in Manhattan this year. However, by the end of year, there will still be a number of mid-range buildings that will remain vacant, Riguardi said.<\/p>\n Olympic Tower. Image courtesy of Vocon<\/p><\/div>\n The pandemic shut down non-essential construction throughout Manhattan for 11 weeks, putting tens of thousands of construction jobs on hold. According to Carlo Scissura, president & CEO of the New York Building Congress, construction spending declined this year for the first time since 2011, with spending falling by 8.5 percent from 2019.<\/p>\n \u201cIn the decade prior to 2020, the construction industry was New York City\u2019s fastest-growing employment sector,\u201d Scissura said. \u201cThe 2017-2019 period before the pandemic represented one of the highest points in the market.\u201d<\/p>\n Scissura expects the city\u2019s office market will experience a continued decline in exterior construction and an increase in interior renovations. He attributed the shift to the renewed attention to the importance of creating welcoming and comfortable workspaces. <\/p>\n As of October 2021, more than 20 million square feet of office space was taking shape in Manhattan, according to CommercialEdge data. Most of the projects that broke ground this year were redevelopments or renovations of older structures, except for the 414,000-square-foot mixed-use Urban League Empowerment Center, located at 121 West 125th St.<\/p>\n Vocon President Tom Vecchione said building owners are reaching out to his firm and other architects to create environments where people can make serendipitous connections. Post-COVID, designing a vibrant and interesting ecosystem<\/a> for a building is just as important as the construction of the property itself. Case in point: The top request from tenants is having access to outdoor space from their offices or, even better, their own outdoor space.<\/p>\n READ ALSO: <\/strong>Top 5 NYC Office Building Sales<\/a><\/p>\n \u201cTenants really want a lot of amenities, such as conference centers, lounges with food availability, outdoor spaces, modern HVAC systems they can turn on and off for fresh air,\u201d Riguardi said.<\/p>\n Nothing is going to take away from the long-haul power of workplaces, according to Vecchione. There will be a shift to office buildings that are curated and well positioned in terms of how people want to work in the future.<\/p>\n \u201cNone of my clients\u2014both building owner and tenants\u2014are saying the workplace is going away, it’s evolving,\u201d Vecchione said. \u201cTechnology is going to come in with solutions, hybrid work patterns will evolve, and buildings will become more hospitality oriented.\u201d<\/p>\n Despite the focus on office building interiors, there is reason to be optimistic about the outlook for the city\u2019s construction industry. Scissura pointed to the recent passage of the federal infrastructure bill, which has unlocked major funding for infrastructure improvements and development, in addition to public works projects across the state.<\/p>\n \u201cThese large-scale projects will not only create jobs and stimulate the economy, but also improve New Yorkers’ quality of life,\u201d Scissura said. \u201cThe incoming mayoral administration also poses a great opportunity to see renewed capital investments and a sharper concentration on New York\u2019s construction industry. \u201c<\/p>\n Image by Noelsch via Pixabay<\/p><\/div>\n Although the 2020 investment sales market for office buildings was down, 2021 has shaped up to be quite a strong year, according to Darcy Stacom, chairman & head of New York City capital markets for CBRE. The volume of office sales has decreased compared to pre-COVID figures, but there were still many deals completed. <\/p>\n Just three office building sales, totaling 401,350 square feet, were completed in Manhattan in September, according to CommercialEdge data. Year-to-date through September, the borough has seen $2.2 billion in office transactions, roughly one third of the $6.7 billion sold in 2019 and only half of the volume in 2020.<\/p>\n The office buildings that are selling are primarily those properties that are newly built, well-leased and offer a good environmental rating. The properties with a harder time attracting investor interest are typically older buildings with substantial leasing and rollover risk. \u201cI\u2019m not saying people won\u2019t buy it, but it\u2019ll have a much harder time in the market,\u201d Stacom said.<\/p>\n Aside from new construction, Eastdil Secured Managing Director Gary Phillips noted that proximity to mass transportation is another factor that makes office buildings more attractive than others to investors. \u201cIt\u2019s no secret that the submarket surrounding Grand Central should be a strong momentum market going forward,\u201d he said.<\/p>\nConstruction looks inward<\/h2>\n
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