New York office market subleases slow as remote work ends

5 West Manhattan (Brookfield)

Clothing sales are increasing. The number of subway passengers is at a maximum of 15 months. Lines of customers form in Midtown salad shops during the lunch rush. For better or for worse, New York City office workers are slowly returning to long-abandoned workplaces.

The city’s office market, hit during the pandemic, is also showing signs of recovery, with businesses pulling their spaces out of the sublease market in anticipation of a return to the workplace earlier than expected.

Rent the Runway, which rents designer dresses and accessories to subscribers, recently pulled its 83,000-square-foot Dumbo office from the sublease market, where it had been since September.

“The decision was made, as their business has recovered, to come back and reoccupy the space,” said Ira Schuman, a Savills broker who handled the sublease list, adding that Rent the Runway is one of dozens of companies that have recently decided to reoccupy the space.

More than 15 million square feet of subleased inventory has been dumped into the Manhattan office market since the beginning of the pandemic, according to JLL, as affected businesses aimed to reduce overall costs.

Even companies that weren’t financially devastated by the healthcare crisis – like JPMorgan Chase, which put 700,000 square feet of Lower Manhattan office space on the sublease market in March – jumped on the bandwagon in hopes of saving some money. money filling in extra office space they may not need.

But the rise in sublease additions slowed in the first quarter of 2021 as more Americans got vaccinated and infection levels plummeted.

In Midtown South, 880,000 square feet of sublease space was added in the fourth quarter of 2020, according to Newmark. Just 300,000 square feet were added in the first quarter of this year.

“The combination of the optimism around the vaccine and what I call the parting of the clouds a little earlier” has made some companies realize that they may actually need a space that they had previously considered giving up, said Cynthia Wasserberger, vice president. by JLL.

A new report by Wasserberger lists a sample of 16 such tenants across different industries, including Compass, First Republic Bank, and the advertising agency WPP, which recently delisted a total of 590,000 square feet of space placed in the market since the beginning of the pandemic. .

Last summer, educational publisher McGraw Hill listed its 130,000-square-foot space at Paramount Group’s 1325 Sixth Avenue for subletting to “assess our physical footprint,” the company said in January. But the firm recently pulled a 100,000-square-foot portion from the listing as it is now considering plans to welcome its employees this year. Zillow Group, SalesForce and Buzzfeed have made similar moves recently, according to a report from Savills.

On average, subleases are offered for about 25 percent less than direct leases, and average subleases requesting rentals decreased by 4.9 percent more in the first quarter compared to the prior year, according to Danny Mangru, director of research. from Savills to New York and El Tri. -State region.

Savvy tenants have taken advantage of the discount by getting some of the best space available. Noom, a developer of weight-loss apps, signed a 113,000-square-foot sublease to take the control most of the R / GA ad agency space at Brookfield Property Partners’ 5 Manhattan West.

Some companies may be pulling their sublease lists after realizing they’re not going to save as much money as they hoped in a market awash in competition, said Michael Colacino, president of online commercial brokerage SquareFoot.

“As people discover that the price they want is not being met, their expectations are revised,” Colacino said. If office tenants wanted to sublet their space but can’t find buyers unless they offer a big discount, he said, they may conclude that “it’s really better to just keep it.”

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