Banking Crisis Expected to Add to Manhattan, San Francisco Office Woes
Affected banks could spill hundreds of thousands of square feet on to both markets
The fallout from troubles that have engulfed Silicon Valley Bank (SIVBQ), Silvergate Bank, Credit Suisse (CS), Signature Bank (SBNY) and First Republic has caused all sorts of chaos, and here comes some more.
The other shoe has yet to fall: That’s the significant amount of office space all five banks lease in New York City and San Francisco. The banks’ troubles could add hundreds of thousands of square feet to markets already struggling with high vacancies, according to a report from CompStak that tracked the banks’ office footprints.
“I think that the question is that some of these banks have been acquired — Credit Suisse by UBS and Signature by Flagstar Bank — what will those banks do with the offices [leases] that they’re acquiring,” Alie Baumann, director of real estate intelligence at CompStak, told Commercial Observer.
Credit Suisse, for example, leases 1.1 million square feet from SL Green (SLG) Realty and PGIM Real Estate at 11 Madison Avenue, which it renewed in 2016 for 21 years, CO reported at the time. The bank also had 31,000 square feet with Columbia Property Trust at 650 California Street in San Francisco.
UBS already has a significant footprint in New York City with a 900,000-square-foot lease at RXR ’s 1285 Avenue of the Americas that runs out in 2033, so it becomes a question if it will fold Credit Suisse’s NYC office into that space, according to CompStak.
UBS did not immediately respond to a request for comment.
The report found that The 601W Companies also has exposure to these struggling banks because it leases a 212,000-square-foot office to First Republic at 410 Tenth Avenue.
First Republic’s leasing footprint isn’t just confined to 410 Tenth as it also has 156,000 square feet at CommonWealth Partners’ 1889 Century Park East in Los Angeles and several offices in San Francisco in Paramount Group’s 1 Front Street, Honorway Investment Corporation’s 388 Market Street and Doublewood’s 111 Pine Street.
Signature Bank has 62,000 square feet with Silverstein Properties at 1177 Avenue of the Americas, which isn’t supposed to expire until 2037, and an additional 92,000 square feet with Empire State Realty Trust at 1400 Broadway.
The CompStak report found that the majority of these struggling banks’ New York office spaces, nearly 1.8 million square feet, are set to expire between 2035 and 2037. While that’s a small percentage of the nearly 470 million square feet of office in Manhattan, it would add significantly to the already growing amount of available space for lease in the borough.
A JLL report found that Manhattan’s vacancy rate hit a record high of 16.1 percent in the first quarter of this year while Colliers found that more sublease space was on the market than during even the early months of the pandemic.
In San Francisco, the situation is far more dire.
Some 600,000 square feet in office leases by these banks are set to expire in the Bay Area from 2023 to 2025, with 60 percent of that volume from First Republic alone. Then, the region is facing the prospect of another almost 600,000 square feet of leases from these banks due to expire in 2029 to 2031, according to the report.
In the first quarter of 2023, San Francisco’s availability rate for empty space and expiring leases rose to 29.4 percent, an increase from the 27.6 percent seen in the fourth quarter of 2022, SFGate reported on Tuesday. Vacancies in the office market stand at 34.6 percent.
“There’s no shortage of bad news about San Francisco, unfortunately,” Bauman said.
Mark Hallum can be reached at firstname.lastname@example.org.