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PODCAST: Lenders May Be Avoiding Office Deals Right Now, But That Won’t Go On Forever

Bisnow's audio series, Bisnow Reports, examines every facet of the international commercial real estate industry — from the murky future of retail and office to real estate’s reckoning with diversity to the effects of climate change on the built world, and so much more. You can subscribe on iTunes, Spotify and Amazon Music, or scroll down to listen in your browser.

Office availability was over 19% in Manhattan during Q1 2022.

On this episode of the podcast, we're examining the office leasing market in New York City and how lenders view office assets. More questions have been raised around the office sector in recent weeks, as investment giant Blackstone handed back the keys to the building at 1740 Broadway and as the office vacancy rate has remained stubbornly high in Manhattan.

“This utilization of office has really delayed the interest of lenders to lend on office, particularly in the major CBDs,” Michael Gigliotti, the co-head of the New York office at JLL Capital Markets, said on the podcast.

He added that leased offices are garnering attention from lenders, but the liquidity in the market means they can't ignore the broader office sector forever. 

“Owners are a little bit fed up with the lack of yield in multifamily and industrial, and there's certainly people looking at office and retail more than they were a year ago, but it's the haves and have-nots,” he said.

In today's market, Gigliotti added, lenders are sooner doing deals on new office construction than Class-B office properties, but there are only so many flashy Class-A, newly developed projects around. And eventually, he expects lenders who may have avoided office will be looking at the sector once more, simply because they have to.

“Eventually, especially these bridge lenders that have raised billions and billions of dollars, they can't get enough multifamily bridge opportunities and industrial bridge opportunities, and they can't get much yield there. The natural next place for them to go are office repositioning opportunities," he said. "Whether that be repurposing or just retenanting, that's been the core of their business and their biggest business for a long time.”

CBRE Executive Vice President Lauren Crowley Corrinet and CBRE First Vice President Alice Fair also share their insights regarding New York City's office market on the podcast.