Office Brokers, Owners Call an End to New York’s Return-to-Office Era

While the commercial real estate industry has spent much of the past few years hoping for signs of long-term stability and growth in the office market, Ben Brown, managing partner and head of Americas real estate at Brookfield Asset Management, shared a strong indicator that office is enjoying major tailwinds of late at Commercial Observer’s Fall State of Office Forum. 

The forum took place Nov. 13 at The Durst Organization’s 825 Third Avenue.

“Every single investor around the world, the No. 1 thing they want to talk about is office — good, bad or indifferent,” Brown told Jonathan Mechanic, real estate department chairman at Fried Frank who interviewed him for the day’s first keynote session. “It’s top of people’s minds, and that usually means there’s a good level of likely dislocation, but also opportunity. So the office market has been challenging, but there’s a lot to be optimistic and excited about.”

This sense of optimism amid challenges permeated the event.

After brief opening remarks by Observer Media CEO James Freiman and Alexander Durst, a Durst Organization principal and its chief development officer, Brown and Mechanic discussed how occupier diversity is starting to resemble the pre-COVID office market.

“For the past couple years in New York, activity feels like it’s been led by financial services, law firms, large accounting consultancy firms,” said Brown, “and we’ve seen the vacuum of activity be sucked out from tech occupiers.” 

“They were so hot to trot for a long time,” said Mechanic of tech tenants. “They were dominating the market, and now they’re not to be seen.”

Brown noted that this is due to more rational behavior on the part of tech occupiers regarding how much space they need.

“They all took a lot of space, so when that goes back, we got the benefit of that,” said Brown. “But now it has become so much more diverse than it historically has been. We’ve had a concentration of a certain sector leading the market, but I think you’ll see a much wider diversity of occupier coming back to New York.”

During an office outlook panel that provided a deeper dive on the office market, Steven Rotter, executive vice chairman at Newmark, noted that whatever vacancy rates indicate overall, theories on flight to quality have held up. That’s because the need to attract and keep top employees makes space in the best buildings as important and hard to find as ever.

“Amenities are always one of two things tenants are asking for. The biggest thing that’s changed is location,” said Rotter. “For people wanting to be near Penn Station or Grand Central, in new developments, it’s very hard to find space in those buildings. There’s under 5 percent vacancy no matter what the news says. Work-from-home discussions are over. People are back at the office. We’re seeing bidding wars for the first time since 2019.” 

Thomas Bow, executive vice president of commercial leasing at The Durst Organization, Jonathan Kaufman Iger, CEO and president of Sage Realty, and moderator Andrew Charles, a partner at Kramer Levin, were also on the panel.

Next came a discussion on the effects of flight to quality on New York’s office market. 

While top-shelf amenities are top of mind in the office realm, Christina Chiu, president of Empire State Realty Trust, noted that flight-to-quality expectations are no longer coming solely from Class A tenants.

“Tenants want the best quality they can get at any price point,” said Chiu. “That includes physicality, floor plan, ceiling height, amenities, programming — all of that is really important. They want the best, and they expect the building to be energy efficient and on top of their team.”

Chiu noted that this expectation actively extends to the financial health of the building’s owner, which needs to be Class A even if the building is not. 

“It used to be the case that we’d say, ‘We have a good balance sheet, come lease with us.’ The reality is I don’t know if it really matters,” said Chiu. “Now you have buildings at risk of going into special servicing. We don’t know what will happen. So financial stability is right up there on the list.”

Also on this panel were Ashlea Aaron, senior managing director of commercial leasing for Durst; Craig Deitelzweig, president and CEO of Marx Realty; Callie Haines, executive vice president and Northeast head at Brookfield Properties; and moderator Nina Roket, co-managing partner at Olshan Frome Wolosky. 

Next up came two keynote Interviews. First, Fried Frank partner Jennifer Yashar interviewed Mary Ann Tighe, CEO of CBRE’s New York tri-state region. 

Tighe said that as high-end amenity packages have become the be-all and end-all for so many tenants, a building’s amenities have become its brand.

“I’ve had this interesting experience that when I go on a tour with a customer and come back and talk about the building, they don’t refer to it by the address,” said Tighe. “They say, ‘The building that had that great roof deck,’ or whatever. And I realized that amenities have become the branding of the building. This is not particular to New York. My colleagues around the United States, around North America, are observing this as well.”

Next, Commercial Observer Editor-in-Chief Max Gross interviewed Bruce Mosler, Cushman & Wakefield’s chairman of global brokerage, who confirmed the event’s optimism regarding the state of office leasing. 

“The better-quality space — new development, Class A, redevelopment space — has begun to shrink in occupancy, and that signaled to tenants, I believe, the belief that if we don’t move now, we’re not gonna get the space we want,” said Mosler. “Better-quality space is moving. Space that buildings have been reinvesting in is moving.” 

Due to this, companies are starting renewal negotiations far earlier than they might have otherwise. 

“The financial services market is savvy. The tech market is savvy. The services sector is savvy,” Mosler said. “And all of them looked back and said, ‘Where we want to be may not be available unless we enter the market today, five years ahead of our lease negotiations.’”

Next, for a panel on residential conversions, Commercial Observer’s Gross, who moderated, asked New York City Department of City Planning Director Dan Garodnick to share some of the weirdest provisions he’s seen within the city’s zoning codes.

“When we were looking at our last proposal on economic opportunity, a lot of rules were laughably outdated,” said Garodnick. “We saw protections, incentives or provisions for typewriter repair shops, model car hobby shops and airline ticketing offices, with a definition for their use and where they can be located in New York City.”

But, while these outdated provisions stuck out, the zoning was just as notable for what it was missing. 

“There was no provision for, let’s say, allowing high-tech manufacturing to exist in a commercial office building,” said Garodnick. “That really stuck with me because it showed that these rules were written in the 1950s or `60s, and had not been updated.”

Also on the panel were Basha Gerhards, senior vice president of planning for the Real Estate Board of New York (REBNY), and Doug Hayden, founder and president at prefabricated construction firm Arthroto.

Next up, for a tighter focus on workplace amenities, Alyssa Zahler, managing director of leasing at Two Trees Management, noted that one amenity growing in preference for occupiers was an enhancement of social opportunities.

“More important than the amenity you’re building is finding ways to help tenants connect,” said Zahler. “We’re seeing that people feel lonely. People miss interacting with other companies and finding ways to create business, create relationships.”

By way of example, Zahler mentioned that Two Tress was holding a mixer that evening for the company’s tenants in Brooklyn’s Dumbo neighborhood.

“We reached out to all of our tenants in the creative industry,” said Zahler. “Creating opportunities like that is a really important touch point, in addition to how gorgeous is your amenity space. We’re seeing that as landlords — we are becoming a bit like a social committee for our tenants. That’s something really important to touch on.” 

The panel was rounded out by Jim Somoza, managing director and partner at Brooklyn’s Industry City; Andrew Wiener, head of commercial leasing at The Feil Organization; and moderator William Lang, a partner at Winston & Strawn.

The final panel of the day took on how technology, sustainability and economic factors are influencing future office plans.  

Mike Daschle, senior vice president of sustainability for Brookfield Properties, noted that a focus on sustainability for an owner’s properties becomes asset-enhancing on all fronts.

“We look at sustainability as a value-creation tool,” said Daschle. “This is something where we can align values with our most important customers in a way that adds value to the buildings and also mitigates risk. If you want access to the type of capital that’s going to invest in the types of funds that can reposition properties like [Brookfield’s] 660 Fifth Avenue, that type of money comes with certain sustainability requirements.”

Also on the panel were Calli Stavola, director of development at owner Savanna; Zach Steinberg, senior vice president of policy for REBNY, and moderator Stephen Rizzo, CEO of CodeGreen Solutions.