The Hit To Office Rents In NYC Hasn't Been As Painful As Predicted
In a glimmer of hope in the seemingly endless stream of bad news for office owners, new figures from Moody’s Analytics show rent drops in New York City were nowhere near as bad as expected last year, and the research firm has adjusted its projections for 2021 up.
Moody’s had bleak predictions for the country’s office market in the early days of the coronavirus pandemic, but that distress has not yet come to pass, according to a paper it release this week.
In New York City, asking rents dropped by 1% last year, though Moody’s Analytics had been expecting a decrease of more than 4%. Meanwhile, effective rents went down by just over 2% — a far cry from the nearly 9% that was forecast. On a national level, the vacancy rate jumped by 90 basis points, going from nearly 17% in 2019 to nearly 18% at the end of 2020. But national asking rents actually ending up posting a slight increase of 0.4% for the year.
Across the board, the facts that landlords offer concessions first and tenants are locked into long-term leases could account for the price stability. The average term of leases in office buildings in the United States is 9.7 years, according to CompStak data.
Meanwhile, the paper suggests 83% of workers will return to the office in the city, amid ongoing concerns that workers will stay remote. And while declines are forecast in the city in 2021 and 2022, overall Moody’s has revised expectations for the near term in the office asset class to be less severe. In fact, New York City does not make it into Moody’s Analytics top 10 list of markets with the highest forecast rent declines in 2021.
San Francisco’s Central Business District tops the list with a predicted effective rent drop of 15% in 2021, followed by San Jose with a predicted drop of 14%. San Francisco’s suburban market could drop by just under 14% this year.
The paper notes that the appeal of remote work will affect office demand going forward, but does not expect the office space will “die,” more that changes will affect different areas in different ways.
In a Bisnow survey of 1,200 commercial real estate professional, 45.8% said they think employees should be allowed to work from home multiple days a week after the coronavirus pandemic is over. Office occupiers are already beginning to chart their returns to the office in the long term, and many are taking a different approach to what they did before the pandemic.
Citigroup, for example, will only expect workers to be at their physical desks three days a week, while Twitter, Salesforce and Facebook have all indicated that remote work will be a permanent offering for their workers in the future.