NYC Office Glut Hit Highs Not Seen Since Dot-Com Bust

Since the virus pandemic, Manhattan landlords have been struggling with a glut of commercial real estate properties as companies shrink corporate footprints and implement hybrid work models that allow white-collar workers to work remotely. 

Demand for office space in NYC was dismal in the first quarter. Space available hit another record high as the availability rate across the metro area hit 19%, the highest since the dark days of the Dot Com bust (2000), according to Bloomberg, citing a new report from Savills Research.

A quarter of all offices were dormant in the Financial District, compared with 17% a year ago. Savills attributes the jump to a pair of redevelopment projects, including the former Deutsche Bank headquarters building.

Firms searching for space focus on “new top-tier space,” said Sarah Dreyer, senior vice president of research and data services at Savills. Asking rents for new buildings in the quarter were up 1.7% to $77.34 a square foot. Average rents in the Financial District were $57.60 a square foot, compared to $83.70 in Midtown.

There will be no recovery in the city’s office sector unless workers return to the office. 

Keycard swipes tracked by security company Kastle Systems show NYC offices are about 36% occupied, far below pre-COVID levels. Even as companies announced return-to-office dates, many implemented a hybrid work model that allows white-collar workers to work remotely part of the time. Some companies have entirely reduced their corporate footprint and enforced remote working for some employees. 

Without white-collar workers, economic recovery will be slow to materialize in the city as the 7.6% unemployment rate is shockingly high compared with the rest of the country (nationwide average of 3.8%). The ripple effect of reduced officer workers damns the local economy. 

The Partnership for New York City business group published a recent survey showing that only 16% of top NYC firms say daily attendance in their Manhattan office was above 50%. The poll showed that about 75% of employers delayed return-to-office plans due to a spike in COVID infections year, and 22% said they don’t have a timeline on when offices will be full again. 

The news of the world’s largest owner of commercial real estate, Blackstone, giving up on one of its Midtown Manhattan office buildings is an ominous sign for the city’s office sector.