Manhattan Office Leasing: Should You Stay or Should You Go?

New York City is one of the most polarizing places on the planet. You either love it or hate it.

Especially in recent years, there’s been an overwhelming cultural shift in which people and businesses are questioning whether the environment is worth the high costs, crime, and regulations.

But at the end of the day, the city's reputation as a global hub is well-deserved, offering unique amenities and advantages that are hard to find elsewhere. Being located in the country's oldest and most competitive financial institution carries not only a powerful reputation but also priceless access to the economic stronghold of the nation. And such an institution isn’t going anywhere.

So, since so many businesses have downsized or made plans to cut ties with their Manhattan locations, tenants that do see the value of corporate space in NYC may be able to reap the benefits of the dip in office demand. In the midst of shifting trends, those who understand the long-term benefits and inherent advantages of New York City's corporate environment may find themselves in a position to receive the rewards of this evolving market.

So let’s discuss the value of a NYC office and what trends are influencing the leasing environment for tenants to decide should you stay or should you go.

Epicenter for Talent and Culture

Being home to Wall Street, the heart of the financial industry, New York City offers unparalleled access to the most influential financial players in the country. The proximity to major financial institutions, investment firms, and banking giants provides businesses with opportunities for collaboration, networking, and access to capital.

New York City serves as a hub for both the public and private sectors, attracting businesses across various industries. The city's robust ecosystem offers opportunities for partnerships, government contracts, and collaborations with leading organizations and institutions.

And that's why the high cost of living continues to be worth it for so many.

New York City boasts a diverse and highly skilled workforce, drawing talent from around the world. And backing the home-grown talent pool is the city's prestigious universities, colleges, and educational institutions systems that provide a constant stream of top-tier graduates.

Certain industries are attracted to certain metros and NYC continues to be a stronghold for the best and brightest financial minds.

High Vacancies Driving Deals for Tenants

New York City has a 16% vacancy rate which is overshadowed by a looming 48.9% office occupancies.

This means that as those under-occupied leases come due in the next few years, the vacancy rate will explode to reflect the true, low demand for office space. 

For reference, consider the vacancy and occupancy data from the country's top ten CBDs. 

And when high occupancy rates are often indicative of market stability and long-term viability, what do occupancy rates under 50% mean? NYC is quite an unstable leasing environment and over the next few years, it's sure to get rockier. 

More vacancies are coming as under-occupied buildings come due. Moreover, with 13.6 million SF of office projects currently under construction, vacancy levels are expected to remain high. 

An abundance of commercial properties and creating a highly favorable environment for tenants. Corporate tenants have seized the opportunity to negotiate more favorable deals, resulting in reduced rent expenses and increased concessions. Because of this, Manhattan recording its strongest office leasing month in January 2023 since December 2019. So, maybe there is hope on the horizon. 

Despite the tenant-driven market, year-over-year rental growth remains relatively modest at 0.3% and significant jumps are not expected in the foreseeable future. However, there is a notable demand for premium buildings that offer exceptional features and amenities. These premium properties attract tenants who prioritize quality and are willing to invest in top-tier office spaces.

As such, rent for these Class AAA properties remains extremely high- reaching as much as $300PSF

For more on this, check out The Manhattan Rent Crisis. 

But despite these certain stick-out properties on the top of the bell curve, as a whole, the rental rates in NYC remain reasonable. And this is a rare opportunity to scoop up space in one of the most powerful cities in the world for a fraction of what costs used to be in years past

High Cost is No Longer a Barrier to Entry

Due to the unstable demand, costs for tenants are likely to get even lower.

This is a unique opportunity to take advantage of the low costs for office space in New York City, thanks to the current oversaturated market. The decrease in demand has resulted in a decline in rental prices, making it an ideal time for businesses to secure affordable office spaces in one of the world's most prominent business hubs.

The reduced cost of office space serves as a barrier of entry that has been significantly lowered. For businesses that may have previously found it challenging to afford prime locations in New York City, this is an opportune moment to establish their presence or expand their operations. With rental prices going down, businesses can now access office spaces that were previously out of their financial reach.

Moreover, the oversaturated market provides tenants with a unique advantage. As other companies and organizations may be downsizing or relocating, there is a pool of talented professionals who may be seeking new opportunities. This presents an opportunity for tenants to source and attract top talent from the New York City market, benefiting from the diverse skill sets and expertise available in the area.

More Opportunities to Find Optimal Solutions

Tenants now have the upper hand in the office market due to over-saturation, granting them the opportunity to choose from a wide range of options. With an abundance of available office spaces, tenants can be selective and find the perfect fit for their needs.

The oversaturated office market means that landlords are competing to attract tenants. Landlords are more willing to accommodate tenant requests to secure their occupancy in a market with increased competition.

Moreover, the surplus of office spaces provides tenants with a variety of choices. They can carefully assess and compare different properties based on location, amenities, size, layout, and suitability for their specific business requirements. Tenants can prioritize their preferences and find an office space that aligns perfectly with their needs, fostering productivity, collaboration, and overall success. Learn the other key factors to finding the office space for the perfect price, whether it's in NYC or anywhere else. 

Why Leave New York?

At the end of the day, we wouldn’t do a discussion on New York justice without mentioning why so many businesses have flew the coop.

Because right now, ultimately, corporate tenants in New York City must consider the benefits of a tenant-friendly market against the potential challenges of high vacancy rates and the ongoing impact of remote work on office utilization. 

The tenant-favored leasing environment isn’t exactly stable. Landlords are taking a serious cut right now with lower rents and higher concession packages per tenant, if they can even find a tenant. That means in coming years, there will be an increasing number of landlords who can’t afford to pay their bills.

The office investment in NYC is not exactly hot right now, and they may have to hand their keys back to the bank, pressured by looming office loans coming due.

1 in 3 landlords are already at risk of default, and in places like NYC the risk is even higher. The long-term lease environment is on unstable ground, as $16 billion of loans set to mature this year in NYC alone. According to Metro Manhattan, this represents a 30% year-over-year increase.

This means the instability of the market is sure to get worse before it can get better. Tenants need to conduct more due diligence to ensure that the amazing deal they were able to negotiate due to low demand isn’t too good to be true. Because landlord defaults are coming.. Learn how to protect your interests as a corporate tenant in this new, delicate leasing environment.

Is an Office in NYC Worth it?

Right now, there’s incredible leverage for tenants wanting to expand their footprints. Since so many companies are slashing their space, this introduces a window of opportunity for those looking to retain their offices but still cut costs.

If you want to be in NYC, a Tenant Rep can help you get a great price and the best terms. This is not the time to be using the landlord's broker. Whether you want just get a much better renewal deal in NYC or want to consider moving to a more cost effective area, the True Tenant Reps™ at iOptimize Realty^® have the experience and market knowledge to make it happen for you.

You have the potential to reduce your current rent to market value, receive more concessions, and improve your bottom line if you make smart moves with your CRE. So, don’t leave it to chance. Learn the unspoken tips and tricks used by True Tenant Reps™ to find your best office space for the best price.