Tag: Office

Understanding the office occupancy rate in NYC is important to a host of various stakeholders and, until now, the numbers have been reported broadly without much nuance. That is, the return to office numbers have focused on a single market average which shows directional trends but fails to capture the difference between building classes. The company responsible, Kastle Systems, measures building entry swipes but it doesn’t cover properties owned or managed by Rudin Management, Brookfield Properties, Silverstein Properties, Rockefeller Group, Tishman Speyer, Boston Properties (formerly Boston Properties) and Related Companies. That’s a problem as these guys own some of the best-in-class office towers where many law firms, banks and financial-services firms call home. These tenants also have more employees at their desks than, say, tech, creative and media firms.

For a more accurate read of daily occupancy office numbers, REBNY (Real Estate Board of New York) recently issued a report that relied on Placer.ai, which uses location intelligence data to measure the movement of mobile devices in and out of office towers across the city. Specifically, it covers 250 towers of all classes, including many of the larger owners of Class A buildings. As a result, the numbers are more nuanced with Placer.ai and can measure differences in occupancy between Class A and Class B buildings and get more granular on office occupancy on any given day of the week or even times of the day.

Placer.ai could probably tell you which industries have the hardest working employees (investment bankers or corporate attorneys), measure the differences in occupancy of all buildings in an owner’s portfolio (and extrapolate from the data why some may be underperforming others) or determine which professions/businesses have higher occupancy levels to help owners strategize which tenant types to target. A few takeaways from the REBNY report include occupancy rates exceeding 50% of pre-pandemic levels for nearly two-thirds of all buildings and, more interestingly and not surprisingly, Class A buildings were at 66.3% of pre-pandemic levels while Class B buildings were only at 53.6% of pre-pandemic levels in 2022. We are in the early innings for sure but expect companies like Placer.ai to play a greater role in measuring key performance indicators for all asset classes and not just NYC office buildings.

Cuozzo, Steve. “Rebny’s New Return-to-Office Gauge Paints Bright View for ‘Trophy’ Towers.” New York Post, 26 Feb. 2023, nypost.com/2023/02/26/rebnys-new-return-to-office-gauge-paints-bright-view-for-trophy-towers/. 

The selloff in the tech sector has been brutal but, somewhat underreported, is the ongoing troubles with the office market.  And it isn’t just the landlords who will suffer from low occupancy rates, high-interest rates, and punishing property taxes. The pain will ripple through municipalities, impacting city and school budgets as landlords are starting to contest—what they view as—bloated and unreasonable tax assessments on their properties.

According to CBRE, appeals of tax assessments are up 30% to 40% for those states that assess annually compared with a typical year before the pandemic.  If successful in their appeals, expect job and program cuts, defaults in the municipal bond space, and for city governments to shift their focus on residential properties in an attempt to offset shortfalls in tax revenues.  Certain cities are particularly vulnerable as nearly 10% of their tax base comes from a handful of the largest commercial property taxpayers (i.e., Boston, Detroit and Denver).

Another troubling sign is that about 10% to 15% of states don’t assess office values annually so the impact to city coffers—although inevitable—will be delayed. Perhaps one of the best ways to quantify the current pain in the office space is to look at the stock performance of two publicly traded REITS, Vornado Realty Trust and SL Green, each of which owns approximately 26 million sq. ft and 33.6 million sq. ft. of office space, respectively.  In the last five years, Vornado’s stock price is down nearly 70% and SL Green’s 65%.  Looking back the last twelve months is nearly as horrid for each of them and their stockholders.

Press, David Zalubowski/Associated. “Shrinking Office Building Values Are Becoming a Dilemma for City Budgets.” The Wall Street Journal, 13 Dec. 2022, www.wsj.com/articles/shrinking-office-building-values-are-becoming-a-dilemma-for-city-budgets-11670917430?mod=hp_featst_pos4.