New York City's Office Space Availability At Record Level
The amount of available office space in New York City is at a record high, Piper Sandler analyst Alexander Goldfarb told clients in a note while citing a new report from real estate service firm Cushman & Wakefield.
A year and a half, or approximately 18 months, into what the World Health Organization formally declared a virus pandemic in early March 2020, the remote work trend is still holding strong and pressuring commercial real estate in NYC.
Goldfarb wrote that Class A rents have fallen, and there is an expectation for further declines. He doesn't see a full rent recovery until 2025 as vacancies will remain stubbornly high due to increasing supply.
Technology has made virtual conference calls possible from remote areas. The emergence of new COVID variants and breakthrough infections are keeping people out of the office and remote working until at least early 2022. Without workers returning to offices, the economic rebound in the metro area will remain lackluster compared to the rest of the country.
"The pace of economic rebound will be the biggest determinate for Office, especially given the pending new supply," Goldfarb added.
That's unfortunate news for real estate investment trusts (REITs) with large concentrations of NYC office buildings in their portfolios. And in Manhattan, it's especially problematic, especially given high office building availability.
Piper Sandler remains neutral on SL Green Realty and Vornado Realty Trust due to record space availability. They prefer getting exposure to the Westside of Los Angeles and Seattle because of a shortage of buildings and growing local economies.
In three separate notes, we've explained to readers about the oversupplied conditions in the metro area (see: here & here & here) as return to work has been put on hold this year thanks to emerging virus variants even though more than half the country is vaccinated.
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