It seems that there are still office space tenants looking for new and redeveloped space which is good news for Vornado Realty Trust, who has plenty to lease, GlobeSt.com reports. During the company’s recent 2020 fourth quarter earnings call, President and Chief Financial Office Michael Franco said the company had 300,000 square feet of leases out for negotiation.
This commercial real estate includes three New York based properties—a 55,000 square foot lease with a tech company at 1290 Avenue of the Americas and two on 7th Avenue, a financial services company and a nationally recognized non-profit organization. Vornado is also reportedly in negotiations about another 1 million square feet.
“We are feeling more optimistic given what we’re seeing in the first six weeks of 2021,” Franco said on the earnings call. “Tour volume is up. We are seeing more tenant proposals coming into lease space, particularly in the financial services sector, and companies are looking to take advantage of current market conditions.”
A lot of Vornado’s current lease negotiations aren’t new, but being resumed from where they left off before the COVID-19 pandemic hit the U.S, according to Franco. The resumed negotiations are an encouraging sign that office space tenants are ready to return to physical locations after working remotely for months.
“Importantly, as large companies begin to plan for their employees’ return to the office, they are also beginning to focus on their future lease expirations and interviewing brokers, as first steps in the process,” Franco said during the earnings call.
Although it is encouraging to see office negotiations pick back up again, it’s still just an initial step. Franco expects that leasing activity will still be slow during the first half of this year, according to GlobeSt.com. Rents have gone down and landlords have had to make more concessions just to fill vacancies. Vornado believes the industry has begun to stabilize however.
What an office space renaissance means for Vornado
It was important that good news came out Vornado’s fourth quarter earnings call regarding office space leases as it comprises a large portion of the company’s CRE portfolio—68% of Vornado’s net operating income came from New York City-based office space as of the end of 2020, according to The Motley Fool. Meanwhile, the company’s office properties in Chicago and San Francisco made up another 13% of its NOI. With ownership and management interests in almost 20 million square feet of office assets in Manhattan alone, resumption of office lease negotiations could not have come at a better time for Vornado.
Other office building owners wouldn’t mind seeing a positive shift in leasing opportunities either. Vacancies increased 240 basis points in 2020 to 15.2%, according to Marcus & Millichap, GlobeSt.com reports—the highest rate since 2010. Meanwhile, total absorption was negative 150 million square feet in 2020, only the 220 million square feet loss during the 2001 recession was worse.
Marcus & Millichap SVP and Director of Research Services John Chang foresees a turnaround once the COVID-19 vaccine is more widely distributed. Office tenants will start make decisions about space again and absorption will trend back towards positive figures. Such a positive shift might not happen immediately, but the demand is there, he says.
“There are a lot of strategic, real estate investing options on the table right now,” Chang said in a recent video. “About 13% of the US population has had at least their first vaccination shot. So headway is being made. And when that number reaches about 75%, hopefully we will see some substantive changes.”
Joe Dyton can be reached at firstname.lastname@example.org.