Sam Zell, the legendary real estate investor, is best known for closely observing current supply and demand imbalances to develop an analysis as to where the market is moving. In that vein, below is our team’s latest anecdotal perspective on several of the supply and demand imbalances that we’ve been seeing over the last several weeks.
Demand is high for Tenants able and willing to sign long-term leases
The leasing pipeline has continued to be largely frozen due to the uncertainty presented by the COVID-19 environment and the practical challenges of touring space that has weighed heavily on developing momentum with prospects. Despite these circumstances, we have seen extraordinary flexibility and an eagerness from Landlords to lock-in strong companies, with some offering 10-20% discounts for existing clients facing lease renewals and to win prospective tenants open to relocating. As Landlords try to shore up their rent rolls, tenants with conviction about the long-term success and sustainability of their businesses are in heavy demand and have an incredible amount of leverage to secure a well-below market deal.
Supply is flat for Midtown office Space
While the demand for space has been expectedly lower with the current distancing restrictions in place, supply numbers (vacancy rate) have surprisingly remained stable for Midtown office space this far, without any unusual growth due to COVID; the vacancy rate remains at a reasonable 8.4%, where it has hovered since Q4 2018 (source: Costar).
There could be a few limiting factors masking any impact from COVID to date, such as the typical lag in leasing data or certain Landlords simply waiting to market their available space. And while there are many theories as to why we can expect to see a large increase of space hit the market, it has yet to show itself in the numbers.
Coworking and Flex Space demand is staying home – literally
The quick and complete shutdown of NYC has rendered coworking and flex-space spaces practically irrelevant, with the majority of these providers experiencing the financial troubles associated with their own long-term space commitments and short-term member offerings. Considering the existential challenges these providers faced pre-COVID, the significant drops in their respective revenue and the uncertainties of working preferences post-COVID, the demise of these outfits should be watched closely, as they can potentially bring the office market down with them.
And of course, an unprecedented supply of Opinions & Predictions
What are yours? 🙂
