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Tag: Office

Josh Lipton understands the intricacies of the office market like no other. His blog serves as a valuable compass for investors, tenants, and industry professionals seeking to navigate the complex terrain of office real estate. From emerging trends to market forecasts, this platform offers a comprehensive overview of the latest happenings in the office sector.

The office space is no longer merely a physical location where work happens; it has become a reflection of modern work culture and a crucial factor in attracting and retaining talent.

WeWork Doesn’t Work and It Never Did



It’s been nearly a year since we last checked in on WeWork when we wrote a blistering critique of its founder, Adam Neumann, who has demonstrated an uncanny ability to fail upwards and amass obscene wealth in the process.  The WeWork narrative is one of shareholder pain and suffering coupled with broken dreams and empty promises. Neumann is doing just fine though: he walked away with a whopping $1.7 billion (yep, that’s a “b”) while the company currently teeters on collapse with a market value of approximately $700 million and trading under $1 per share. So the stock is in the crapper but perhaps operationally the company is doing better? Nope, WeWork recorded a loss of $527 million in the fourth quarter of 2022 (better, however, than a year earlier when the company lost $803 million).  Revenue for the first quarter of 2023 is expected to come in well under analyst estimates and the cash burn for the year is pegged at $210 million.

The company is undertaking a financial restructuring that will involve its largest shareholder converting debt to equity and extending the maturity of its existing loans at higher interest rates no doubt. CEO Sandeep Mathrani—putting on his best game face—claims the company is “methodically executing his plan to achieve profitability.” Call me Groucho Marx and count me out of this club of financial chicanery. That said, you almost can’t blame CEO Sandeep as he was handed something unsalvageable and asked to conjure up a nearly impossible turnaround. WeWork was doomed from the start with an easily duplicable business model exacerbated by bad execution and insider grift.  The next update on WeWork will likely find the company in the bankruptcy bin. See you then.

Stribling, Dees. “WeWork, Now Trading below $1, on Verge of Financial Restructuring.” Bisnow, 16 Mar. 2023, www.bisnow.com/national/news/coworking/fresh-capital-infusion-for-wework-from-softbank-reportedly-in-the-offing-118131. 
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Can We Get More Nuanced Numbers on NYC’s Office Vacancy? Now, We Can.

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 PropertiesSilverstein PropertiesRockefeller GroupTishman SpeyerBoston 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/. 
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Office Space Vacancy Isn’t Just Bad for Landlords

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. 
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Checking in on Office Space: NYC and Nationwide

As concerns about Covid fade from the American consciousness, work from home (WFH) remains sticky and it’s impacting the office market. It’s been some time since we last checked in on the health of New York City’s office sector and, it turns out, all is not well.  As leases come up for renewal, companies are sometimes opting for smaller space, saddling landlords with millions of square feet in vacant space.  Attendance at office buildings in New York is less than half of pre-pandemic levels and a similar narrative is playing out in Boston, Atlanta, San Francisco, and other cities.

Worse still, more space is expected to hit the market in the coming months and years as companies like Meta, Salesforce, and Lyft lay off workers (more than 100,000 tech workers have lost their jobs this year and more layoffs are expected) and more than 100 million sq. ft. of new office product is expected to come online. Wall Street is anticipating a slump in this space as shares of large landlords are trading close to or below their pandemic lows, underperforming the broader stock market.

What options do landlords have with higher interest rates, low occupancy levels, and a pivot by tenants to smaller spaces in newer better-equipped buildings? Not many: all are hoping for better times but some are throwing in the towel, handing over the keys to their lenders while others are looking to convert office buildings into residential complexes, an expensive and time-consuming option.  Let’s look at some of the numbers:

  • The value of U.S. office buildings could plunge 39% in the coming years;
  • NYC collected $6.8 billion in property tax revenue from office towers in the year ending June 2022 (~9% of its total tax revenue) down from $7.5 billion in the previous fiscal year;
  • The market value of office buildings in NYC fell by $28.6 billion this year, the first decline since 2000; and
  • Office vacancy rates in downtown NYC are at a record high 20.2% and similarly high across the country (19.1%) with some markets like Chicago, Houston and San Francisco exceeding 20%.

With New York office space costing on average about $16,000 a year per employee, you can bet on employers continuing to downsize their space needs during the pending economic downturn. Dark clouds for office landlords are likely to persist for the foreseeable future. 

Eavis, Peter, et al. “Why Office Buildings Are Still in Trouble.” The New York Times, 17 Nov. 2022, www.nytimes.com/2022/11/17/business/office-buildings-real-estate-vacancy.html.
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Manhattan Office Numbers are In and… It’s a Mixed Bag

Maria Gotsch is Partnership Fund for New York City. (n.i.). https://pfnyc.org/. https://web.sichamber.com/Associations/Partnership-for-New-York-City-430

Will they or won’t they…return to the office?  It’s the question employers, office landlords and just about every small and medium sized business reliant on Manhattan workers is asking.  More than 160 employers (mostly located in Midtown and the Financial District) were surveyed between April and May 2022 to gauge the work from home (WFH) trend and how permanent we can expect it to be.  The findings are as follows:

  • A mere 8% of Manhattan office workers report to duty five days a week;
  • On any given workday, you can expect 38% of Manhattan office workers at their office desks (expected to grow to 49% in September 2022);
  • By industry, it is the real estate folks returning in droves with an average daily attendance of 82% with law, tech, media, consulting and financial services firms far behind, all falling in the low to mid 40% range;
  • Larger firms (greater than 5,000 employees) are returning to the office more slowly than smaller firms (fewer than 500) with 53% of employees in the office on an average weekday for smaller firms vs. 31% for the larger companies.

The good news is that the trend suggests Manhattan office workers across all industries and company sizes are expected to return to the office in greater numbers.  In addition, 58% of the companies surveyed expect their headcount in NYC to increase or stay the same over the next five years.  The more troubling metric for all the stakeholders who depend on office worker dollars every day is that 78% of employers envision a hybrid office/work from home model post pandemic.  The bottom line: WFH is an acronym we will all be adopting and we ought to start adapting to this new reality, including the executives in C-suites at REITS like Vornado and SL Green as well as the homeless person living off the kindness of NYC strangers.

Gotsch, Maria. “Partnership for New York City.” The Staten Island Chamber of Commerce, web.sichamber.com/Associations/Partnership-for-New-York-City-430. Accessed 24 May 2023. 
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