By: Benyamin Davidsons
A new trend is developing in commercial real estate as a result of the COVID-19 pandemic. To landlords’ dismay, an increasing number of large New York City-based companies are scaling back on their large office leases.
As reported by Crain’s NY, filings released last week by many of New York City’s largest employers, divulge that many big firms cut back on office space last year. JPMorgan Chase, who was for many years the city’s biggest commercial tenant, dropped out of 300,000 square feet of office space, down to 9.1 million SF, as per its annual report released at the end of February. Wells Fargo vacated 5 million square feet of office space across the country, leaving it with 78 million SF. Bank of New York Mellon decreased its national footprint by 800,000 square feet, down to 6.5 million SF. Goldman Sachs is now leasing 6.6 million square feet, down from 6.8 million nationally. Last week, HSBC Bank announced that it would reduce its office space by some 40 percent over the years to come.
The trend is not exclusive to NY-based banks. IBM cut back 1 million square feet of space nationally last year. AIG closed 21 domestic offices, keeping 146. S&P Global leased six fewer offices across the country, dropping its total to 28 offices, and it sold one of two office buildings it owned in the U.S. “Like other companies, Covid-19, remote work and the needs of our customers and our employees continue to factor into our strategic decisions about real estate,” S&P said.
The troubling news, indicates that commercial landlords and building owners will be suffering. NYC’s Independent Budget Office predicts that property-tax collections will drop by $1 billion this year due to “major declines in assessments of commercial property.” Real estate firm Savills found that by the end of 2020, over 15 percent of Manhattan’s 450 million square feet of office space was available, up from 11% the previous year. Average asking rents for Class A office space in Manhattan dropped from $98.94 to $90.42 per square foot. Savills said it believes the bad news will continue, with “significant downward pressure through 2021.”
The concept of scaling back office space to cut expenses is not a new one. For close to 30 years, financial institutions have been relocating mid-level employees to other cities in a quest to lower expenditures. “The pandemic will accelerate that process,” said Kathy Wylde, chief executive of the Partnership for New York City.