Economic pressure on NYC property owners who lease office space

On Behalf of | Jan 5, 2023 | Commercial Leases, COVID-19 Concerns

No one could have predicted the extreme, once-in-a-lifetime events that began with the March 2020 emergence of COVID-19. Now, after almost three dramatic years, inflation and the Federal Reserve System’s (the Fed’s) corresponding interest rate hikes add even more ingredients to the economic stew that property owners must analyze to make smart business decisions. And while the Fed does not directly set mortgage rates, higher federal interest rates help nudge them up, so a higher federal rate is important to landlords contemplating expansion of their rental inventory.

On the other hand, higher mortgage rates often result in more renters in the market who do not want to invest in their own homes or business properties until the cost of borrowing money drops. But after enduring financially difficult eviction moratoriums and  laws and regulations during the pandemic, some property owners may be hesitant to jump at opportunities that just might pay off.

Reading the economic tea leaves of office leasing

It is difficult to discern how the office-leasing market will evolve over time in NYC and at what point and in what form things will eventually level out. Of course, companies realize now that they do not need as much space if they run hybrid work models, use more flex spaces that do not require cubes for everyone, or even change to 100% work-from-home mandates.

So, they may be hesitant to renew their commercial office leases especially if property owners raise rents. Companies may also hesitate to take on new leases. Renewing but for less office space and/or a shorter lease term may at times be an option for a commercial landlord.

Colliers monthly leasing data showed that after some upward progress over the summer, from September to October 2022 office leasing in Manhattan dropped a whopping 40%, reports GlobeSt quotes real estate professional Rob Gilman as saying this downward pressure is related to recession fears and employees who do not want to come back to the office.