NYC Real Estate Market Is Down. Thanks, COVID-19
NYC Real Estate Market Is Down, But That Doesn't Mean You're Out
Over the weekend, Stefanos Chen of The New York Times wrote, “The recovery is tenuous, but renters are returning, buyers are getting deals, and those who stayed are finding a measure of vindication.” It might look a little different for now, but for anyone who doubted us: New York City lives! We at Vicus Partners prefer not to pretend to know all the answers. Nobody does. And while we may not have all the answers, we can listen to your specific situation, share relevant information and what we’ve seen from working with other similar tenants as it applies to you, and help you execute a solution that sets you up to succeed.
We know that:
- Manhattan leasing activity last quarter was half that of the same time last year, and almost half of the city’s 5-year rolling average (Colliers)
- The average asking rent in Manhattan decreased by 2.8%, which may sound small but is the sharpest % decrease since 2009 (Colliers)
- Manhattan office availability is at 12.3%, or a 7 year high (Colliers)
- Manhattan has 16 million square feet of available sublease space, which at 27% of total availability is a 10 year high and a 47% increase from the same time last year (Real Deal)
What’s not in the above data is what we’ve actually seen from negotiating and closing deals over the last 6 months:
- The real flexibility for tenants right now is not in the asking price; it’s where the Landlord will actually do the deal. We’ve seen taking rents fall 10-20% below asking rents, with subleases trending at the top of this range or higher. In addition to much more flexible taking rents, Landlords are offering more incentives in the form of more months of free rent and building out your space or giving a higher tenant improvement allowance.
- Landlords willing to decrease currently paid rent by 10-20% starting now in exchange for signing a longer-term lease in their existing space (this is in addition to several months of free rent and real estate taxes resetting to $0 with a new base year).
- Landlords willing to credit previous months’ unpaid rent in exchange for a tenant signing a longer lease in their existing space (this is in addition to the above described favorable terms on a longer lease)
- Restaurant landlords willing to do a percentage lease (this is a first for NYC)
Each scenario below is different (and yours may be too), but they all have three things in common:
- They all happened in the last 30 days and show how the market is changing in favor of tenants now even more than the first 6 months of COVID-19.
- They are all examples of free rent given by Landlords – no deferment, no payback, and no additional term on the lease needed. This is only now becoming more common.
- The Landlords in all 4 scenarios recognized that working with their tenants on a solution is far better than facing vacancy (or occupancy by a non-paying tenant) in a market where the Manhattan vacancy is now at a 24 year high of just over 13% (The Real Deal).
- We negotiated with a privately held Landlord on behalf of our medical practice client with office space in Downtown Manhattan to get their rent reduced by 30% until January of 2022. Our client simply pays 70% of their pre-COVID rent until January of 2022, at which time they revert back to their original rent schedule.
- We negotiated with a different privately held Landlord to reduce our client’s rent by 15% on a month to month basis; rather than defining a set end date for the rent reduction like above, this Landlord was willing to keep the timeline open-ended and reevaluate based on our client’s continued hardship and the market situation.
- We negotiated with another Landlord to reduce our client’s rent by 50% for 2 years: our client will pay back only 50% of rent owed since March 2020, and going forward will pay 50% of its originally planned rent until the end of 2021.
- We negotiated with a large, publicly held Landlord who agreed to let our client (their Subtenant) out of their lease if they agree to get current on rent and give up the security deposit. Our client owed 3 months in back rent and had a large security deposit in place, but together this was only 20% of their total remaining lease obligation paid to successfully exit the lease.
So what does this mean for you?
You as the tenant are in the driver’s seat in a way you haven’t been in over a decade. Every real estate situation is unique, but we’ve seen it all (maybe not all, but most!) and we’re committed to exploring traditional and creative paths to find a solution that works for you and your company. If you can, now is the time to leverage the market and set yourself and your business up to succeed in the long term. Our goal as tenant-only representatives is to not only help you and your business ride out COVID-19, but also put you in the best possible position to leverage this market when COVID-19 is long gone.