Manhattan Office Struggles May Have Already Bottomed Out: Vornado CEO

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Vornado Realty Trust is seeing increased demand for its New York City office portfolio, amid indications that headwinds to the leasing market from the COVID-19 pandemic may be retreating.

The real investment investment trust (REIT) reported in its first-quarter earnings call Tuesday morning that the pace of leasing activity has accelerated in the past two months. Vornado President and CFO Michael Franco said the firm completed 12 office leases totaling 208,000 square feet during the first three months of 2021, marking its best leasing activity since the 2019 fourth quarter, with the brunt of the action occurring in Midtown Manhattan. He also noted that the removal of nearly 600,000 square feet of sublease space by companies now planning to re-occupy space is another positive recovery trend.

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“The phones are ringing, tour volume is up, proposals are coming in, and leases are being signed,” Franco said. “The current sweet spot for deal-making in the market is with small to midsize firms looking to relocate with new or redeveloped assets.”

Vornado collected 97 percent of its office rents in the first quarter, and 90 percent of retail rents.

Last August, Vornado rented 730,000 square feet of office space for Facebook, as part of a redevelopment of the former Farley Post Office building at 421 Eighth Avenue between West 31st and West 33rd streets.

Vornado Chairman and CEO Steven Roth, who projected in a shareholder report last month that work-from-home trends would not persist post-pandemic, said Tuesday that major technology companies like Facebook intend to grow their footprints in New York, because of the region’s deep and diverse talent pool. Roth said anecdotally that he sees signs from brokers that Manhattan’s office struggles during the pandemic may have already hit their low mark.

“Several of the brokerage houses have told their folks and their clients to get into the market now, and [that] this is the bottom,” Roth said. “They expect a turn from a tenant market to a landlord market to happen over the next six months.”

The two largest leases inked by Vornado during the first quarter were new to the REIT’s portfolio, including the Yad Avraham Institute for a new school facility comprising 74,000 square feet at 826 Seventh Avenue, and fuboTV taking 55,000 square feet at 1290 Avenue of the Americas. Franco noted that Vornado is currently negotiating leases for 300,000 square feet, of which 200,000 would comprise new tenants.

New York City-based Vorando’s largest available blocks for leases feature 180,000 square feet at 330 West 34th Street, and 117,000 square feet at 85 10th Avenue. Office lease expirations for 2021 and 2022 are “very modest” at less than 5 percent each year, according to Franco.

Roth said that, in addition to office demand, Vornado is also receiving inquiries about utilizing some of its Manhattan assets for studio space, due to the increased popularity of streaming services and a desire to film in the Big Apple.

“The companies that are in that business are huge financial entities, and they have a hankering and a strong desire to be in New York,” Roth said. “There is a great deal of interest in some of our assets that we are working on.”