The city’s office market is all about hospitality and the flight to quality as building owners are sprucing up their products to woo the companies that are trying to entice their workers back to the office.
“It’s product not price,” said Howard Hersch, vice chairman of JLL, as some firms are forking over upwards of $100, $200 and even $300 per foot to get perched at the priciest properties.
That’s because tenants are “picky” and spending on quality spaces even if they are smaller than prior offices. “It would have been 20,000 square-feet before and now it’s 10,000 or 12,000 square feet,” said Peter Braus, managing principal of Lee & Associates NYC. “They spend the same but the quality level is higher and the dollars per foot are higher.”
Certain market sectors are also vastly outperforming others. “The obvious winners of the pandemic real estate market are the new buildings, said Michael Cohen president of Colliers Tri-State Region. “Work from home is just the next new way of making the workplace more efficient. It won’t replace the workplace but will augment it. It’s not the death knell of big cities.”
But there’s still a struggle to get employees back to work as occupancy was just 42.2% for the week of June 15, according to Kastle Systems’ metrics.
A Partnership for New York City survey of 160 companies found just 38% of workers present each day with 21% in two days per week. A whopping 78% expect hybrid work to become the norm.
Indeed, almost as soon as a company demands office attendance, they do an about-face as workers threaten to leave. “The employees are really running the show,” said Jodie Pulice, CEO, JRT Realty Group.
Recent surveys found the primary dog-ate-my-homework excuse for not leaving home is based on the fear of crime and riding the subway — something Mayor Eric Adams is addressing by adding cops to the underground, dismantling tents and chipping away at the crime stats.
Still, the couch potato career is a head-scratcher for those that have been commuting to the office regularly for over a year – including most real estate companies and attorneys.
The Partnership survey found 38% want more workers with 18% wanting to bump up their square feet. And right now, there is plenty to be found.
Recent stats from Colliers found a Manhattan availability rate of 17.2% in May, down .1% from April. Average asking rents were also down by 30 cents from April to $75.34 per foot.
At a recent NYU REIT conference, WeWork’s CEO Sandeep Mathrani said “If you want employees to come back, build a WeWork.” That’s because its co-working occupancies rose faster than those in regular offices as “the vibe was back.”
Tech companies, Mathrani said, are now facing the reality of where to put all their pandemic hires. “Now they are bringing them back and how do they house them, even if we bring them back one or two days a week?”
Coworking also worked for those who first showed up to empty offices and didn’t want to be by themselves. Instead, they parked themselves at such facilities closer to home or even at desks in their apartment tower’s amenity areas.
As the weather is better and daylight last longer, Winston Fisher, partner in Fisher Bros. said, “I’ve noticed a shift that the world is really opening.”
Once lifeless Midtown now has lunchtime throngs and many bigger companies are planning ahead with searches and signed leases.
HSBC leased 264,000 square feet at 66 Hudson Blvd. aka The Spiral, leaving its 452 Fifth Ave. offices to be re-leased and the building seeking a new owner after one deal fell apart. “[The building] has the genetics that will allow it to be a success,” opined Hersch.
A recent 84,000-square-foot expansion at 425 Park Avenue by Citadel, however, was sad news for 550 Madison Ave. which had hoped to add the investment company to its own tenant directory that now includes Chubb and Hermès, which leased 71,000 square feet in February.
Citadel, however, is also in talks to become the anchor tenant and provide the equity for a new 1,450-foot-high, 1.6 million-square-foot tower at 350 Park Ave./40 E. 5nd St. that would be developed by Vornado Realty Trust and Rudin Management.
These industry leaders see a future in which occupancy bounces back and companies want newer, better and bigger.
“There are buildings all over Midtown that are being set up for demolition or reconstruction with clauses in leases to terminate them if they want to tear them down,” said Cohen.
Hersch agreed “There will be more net losers where the product can’t be improved.”
According to Colliers, availability is up 72.5% since March 2020 with available offices now pegged at 92.91 million square feet of which 19.99 million square feet is for sublease — but the entire market is an astounding540.36 million square feet — the largest in the world. To get workers off their screens, employers are trying different carrots.
To help its tenants woo workers, GFP Real Estate has created a lottery for VIP suite tickets to rock concerts at MetLife Stadium. As they walk into the lobby each day, employees scan a QR code to be entered into the drawing. For 36 ducats to Coldplay that included free food and drinks – worth $1,200 – there were 3,800 entries.
In addition, many owners invested in their assets.
“If you don’t think we are New York strong and the Capital of the World you shouldn’t be in this industry.” – Jodie Pulice, CEO, JRT Realty Group
Fisher, who is also CEO of AREA15 which owns immersive entertainment experiences in Las Vegas and has another planned for Orlando, helped shape their office improvements that include digital art at 299 Park Ave. and 605 Third Ave., and an interactive augmented reality mural at 1345 Ave. of the Americas that can be accessed through a phone.
“We studied the great arrival lounges and airports and what are companies looking for,” Fisher added. “We believe in curating cool; function and cool can go really well together.”
At 1345, $80 million on updates included the creation of a David Rockwell-designed conference center and amenity space. “We always thought of our office as hospitality and dress all our security guards in Barney’s suits and are always thinking about the curation and the experience of not just the CEOs, but to also have a building that helps them get people back to work,” Fisher said.
Google’s head of real estate, Paul Darrah, has been hosting office get-togethers so people can see each other and remember who and what they have missed. That lost human connection was on view at Casa Cipriani at the annual CORENET NY dinner where hundreds of corporate real estate executives, including Darrah, were joyously greeting each other while mingling throughout the dinner.
“Now that tech companies are reducing their headcount, people will have to work harder to keep their job and it will mean showing up at the office and having mentors,” observed Darcy Stacom, chairman and head of capital markets at CBRE.
Tom Vecchione — Managing Principal of the design and workplace services company, Vocon — said they are working on “massive headquarters projects” that won’t be ready for a year or more as companies know they will be back at the workplace. “If you want a job, remote works well,” Vecchione said. “But if you want a career you want to be with clients and have mentorship.”
“Although hybrid work is here … office isn’t dead,” explained Ric Clark, CEO of WatermanClark at a recent Young Men’s/Women’s Real Estate Association (YM/WREA) luncheon. “Better buildings will perform and focus on health, wellness, flexibility and choice and create an environment that validates that.”
As Hersch puts it, “They need better space to get their kids out of their couches.”
The problem for some building owners and the city, however, is that “Eighty percent of the deals are now being made in 10 percent of the buildings,” explained Pulice at another YM/WREA luncheon.
That lead to building owner, Leslie Himmel, saying, “Not all buildings will survive this.” Himmel believes some properties will be repositioned into residential and others will have the benefit of new capital infusions.