- Major office tenants have begun to rethink big leasing decisions costing tens of million of dollars as the coronavirus crisis has threatened to bring on a recession and casts uncertainty over the future of the office space.
- Brown Brothers Harriman, Raymond James Financial, Freshly and other major tenants have put big leasing decisions on hold.
- The pause shows how tenants could back away from prevailing trends in the office market in a post-Covid world, including the popular practice of cramming workers into open layout spaces that encourage collaboration and efficiency.
- Manhattan's once-booming office leasing market has already begun to dip amid the crisis and as tenants increasingly grow hesitant to sign deals.
- Some deals, such as Facebook's plans to lease 700,000 square feet at the Farley Post Office, are expected to still get done.
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Large Manhattan office tenants are starting to shelve their plans to commit to sizable blocks of space as the coronavirus pandemic has darkened the country's economic outlook and clouded the future of the workplace.
Investment advisory firm Raymond James Financial put a decision to consolidate three separate locations into a new 160,000 square foot office at 320 Park Avenue on hold, two sources with direct knowledge of the deal said. A spokesman for Raymond James Financial declined to comment.
Another tenant, the online grocery delivery service Freshly, cancelled plans to take as much as 100,000 square feet at 2 Park Avenue, according to two sources with direct knowledge of the deal. Freshly did not respond to a request for comment.
The people familiar with the tenants said they could reconsider their decisions, reboot their searches and still initiate transactions.
"Just about every leasing deal that hasn't been signed yet has been unwound or put off to the side to see how things play out," said Robert Ivanhoe, who co-chairs Greenburg Traurig's real estate investment trust practice.
Ivanhoe said he recently was working on a 300,000 square foot office lease for a tenant that was planning to relocate from Manhattan to Long Island City. The deal was scuttled by the crisis, he said.
"It has been put on hold, but I'm not sure it can or will be resurrected," Ivanhoe said.
The pause on dealmaking shows how businesses across the city have grown wary of making major space commitments that can cost tens of millions of dollars over the life of a lease amid the coronavirus crisis and its aftermath.
The pandemic, which has cost over 23,500 lives in the US so far and millions of jobs, could cast the economy into a recession, economists say and has spread fear about the safety of the workplace.
The prospect of slower growth and further layoffs has left companies uncertain of their footprint in the near future and wary to take space now only to realize they need less of it later.
The question of how much space to take has only been complicated by uncertainties over how the city's office workplace could be altered by the crisis. In recent years, tenants packed more workers into less square footage to save on real estate costs and embraced open layouts to encourage collaboration. Those practices may fall out of favor as social distancing has become the norm and workers demand more elbow room and barriers to prevent the spread of contagion.
"Tenants are focused on de-densifying their spaces," said Scott Rechler, chairman and CEO of the large commercial landlord RXR Realty. "We went to extreme densification and there's a realization now that for health and wellness we need to change that in a post-Covid world."
To deal with the changes, tenants may opt to allow some portion of their workforce to continue to work remotely or split time between the office and home to reduce density. Such a policy, if adopted widely, could reduce tenant demand for space by reducing their footprint.
The headwinds have not upended all deals. Facebook, for instance, is expected to complete a roughly 700,000 square foot lease for office space being developed inside the Farley Post Office west of Penn Station, according to people familiar with the deal.
The effects of the crisis have, nonetheless, begun to buffet a booming office leasing market, according to recent data from the real estate services firm CBRE. About 6.1 million square feet of space was leased in Manhattan in the first quarter of the year, 35% down from the fourth quarter of 2019 and 12% below the first quarter of 2019.
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