As residential real estate "bounces back," office vacancies continue in Manhattan and Brooklyn. Implication: no push for a Site 5 office tower.

Wait, there's a New York Times headline 7/2/21, Manhattan Real Estate Finally Bounces Back to Normal. But that refers to residential real estate, where the volume of apartment sales--if not price appreciation--has recovered, in the wake of the coronavirus crisis.

Meanwhile, as the Times reported 7/1/21, Office Vacancies Soar in New York, a Dire Sign for the City’s Recovery, noting how enduring patterns of work-from-home have been a drag on leasing:

Across Manhattan, home to the two largest business districts in the country, 18.7 percent of all office space is available for lease, a jump from more than 15 percent at the end of 2020 and more than double the rate from before the pandemic, according to Newmark, a real estate services company.

This is, um, worrisome:

Kathryn Wylde, the president of the Partnership for New York City, an influential business organization, said that New York City was facing its biggest crisis since the 1970s, when half of the city’s 125 Fortune 500 companies moved out.

“This is as close as we’ve come to that type of scenario where there’s an exodus from the city, and the recovery took 30 years,” Ms. Wylde said. “The city has to attract people for reasons other than going to the office.”

Office vacancies have knock-on effects on retail, restaurants, entertainment--and property tax revenues.

And it could get worse, given that, as the Times reported:

A third of leases at large Manhattan buildings will expire over the next three years, according to CBRE, a commercial real estate services company, and companies have made clear they will need significantly less space.

One real estate firm, Savills, was quoted as saying the Manhattan office market wouldn't come back until “late 2022 or beyond"--though the coming expirations suggest that "beyond" is a much wiser prediction.

A shifting goalpost?

True but office workers won’t be called back en masse until September, no?

— Jonathan Miller (@jonathanmiller) July 6, 2021

The partnership survey was taken before the vaccine adoption momentum really kicked in. It was dated by the time it was published. The disconnect with real time was significant in my view.

— Jonathan Miller (@jonathanmiller) July 6, 2021

What it means in Brooklyn

Bottom line for Atlantic Yards/Pacific Park and the pending development at Site 5: a ground-up office building, even given Brooklyn's relative advantages over Manhattan, seems unlikely, especially given the amount of available office space.

Note that plans to shift the bulk from the unbuilt "Miss Brooklyn" tower--the flagship planned for what's now the arena plaza--to Site 5 across Flatbush Avenue remain on hold, given an unresolved dispute between longtime property owner P.C. Richard and the project's original developer.

While Newmark has issued a second-quarter report for Manhattan office space, it hasn't yet issued one for Brooklyn office space. That said, its first-quarter report cited dropping rents and lots of availability.

Already, Newmark's "Path To Recovery" (see below) may be in question, since it predicted that "[l]easing velocity is expected to pick up in the second half of the year." The issue of "velocity" is in question.

Newmark's 2Q21 Manhattan Market Report (bottom)

Their summary:

After closing at an all-time high of $81.71/SF in the first quarter of 2020, asking rents decreased by $7.65/SF over the course of the following year. That decline appears to have halted, as Manhattan overall asking rents dropped by just $0.17/SF from last quarter. This comes on the heels of asking rent decreases of at least $2.00/SF for three consecutive quarters. However, it is important to note that asking rents remain 9.6% below pre-pandemic levels, reaching their lowest point in more than five years.

The numbers:

• Average Asking Rent (Price/SF) $73.89
• Availability Rate (%) 18.7%
• Net Absorption (SF) -9,509,927

Newmark's Spring 2021 New York City’s Path To Recovery (bottom)

Their summary of current trends and the changing narratives of New York City’s office and retail markets:

New York City office-using employment has increased for three straight months.
Mobility has increased steadily, with bridge and tunnel traffic surpassing pre-pandemic levels.
With capacity restrictions loosened, many notable restaurants have reopened their doors.
There are more new tenant requirements this year than there were at this time in 2019 and 2020.
Leasing velocity is expected to pick up in the second half of the year as a result of vaccine effectiveness, improved business confidence, and employees returning to the office.

Newmark's 1Q21 Brooklyn Market Report (bottom)

Their summary:

Brooklyn’s average asking rent fell for the second consecutive quarter to $52.41/SF, with declines across all submarkets. The overall average fell 180 basis points in the largest quarterly drop since the pandemic began. Price reductions were recorded in direct space in several new construction projects as well as existing product, with owners signaling flexibility in taking rents to draw activity as the pandemic surpassed its one-year anniversary. In addition, several new competitively priced availabilities influenced this quarterly drop. More than 78,160 square feet is now available at 295 Front Street, a converted factory in DUMBO, where asking rents are below the submarket’s average. In the Navy Yard, another 70,000 square feet of creative office space is now available at Building 77, a recently renovated flex office building, where office floors are priced below other new construction in this submarket.

The numbers:

• Average Asking Rent (Price/SF) $52.41
• Availability Rate (%) 19.0%
• Net Absorption (SF) -236,034