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Paul, Weiss, Rifkind, Wharton & Garrison LLP is moving its office to 766,000 SF at 1345 Sixth Ave. in Midtown Manhattan, signing the largest office lease in the city and country in 2023. The firm's 20-year lease fills most of the gap left by insurer AllianceBernstein after the asset manager moved its headquarters to Nashville. Fisher Brothers, which owns the 54-year-old building in a joint venture with J.P. Morgan Asset Management, recently completed a $120M renovation. The law firm will occupy 18 stories in the property, expanding from its current location at 1285 Sixth Ave., where it leases roughly 550K SF. The landlord is already in talks with tenants for more than half of the law firm's space, which it will vacate in 2026. The upgrades to 1345 Sixth Ave. include improvements to the building's exterior, touchless elevators, a tenant lounge, and NYC's largest indoor terrarium.
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It’s not all doom and gloom, with 27% jump
Manhattan office leasing activity saw a 27% increase in Q3 2023, reaching 8.23 million square feet, marking the strongest quarter since Q3 2022 and above the borough's five-year rolling average. However, the office market still needs to recover, with total leasing activity finishing 6% below 2022 and a record high availability rate of 96.5 million square feet of vacant office space. The health of the market depends on the location and age of the building, with signs of supply stabilization and tightening supply in certain areas. Midtown South, the only major office market to underperform in 2023 compared to 2022, had a strong fourth quarter with 2.21 million square feet, its most active quarter since Q3 2022. Manhattan's asking rent fell by 0.6% to $74.81 per square foot, with the FIRE industries leading the way with one-third of the activity.
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The Federal Reserve's decision to keep interest rates unchanged through the second half of 2023 and projections for lower rates in 2024 has brought a holiday spirit to the real estate industry after two consecutive years of deteriorating conditions. The office market in New York has been affected by the longest string of interest rate hikes in two decades, as landlords and tenants have found it harder to secure financing. The prospect of lower borrowing rates due to declining interest rates and inflation may bring good news for office landlords, who continue to be beset by uncertainty three years after the pandemic.
Commercial sales, leasing, and new construction in the city slowed by double digits in 2023 as property values declined, institutional investors retreated from real assets, and debt servicing costs rose with interest rates. However, some of the largest office leases and property sales closed in the second half of the year, breaking up an otherwise steady stream of challenges for the sector.
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New York City has seen a significant increase in office workers, with 51.3% of employees working in the city's offices during the seven-day period ending on December 6. This marks a near-record level since the start of the pandemic. The city reached 50% of its prepandemic in-office levels in early June and has remained just a few percentage points below that threshold ever since. However, after the Thanksgiving holiday, New Yorkers returned to the office in droves over the last two weeks, according to data from real estate technology firm Kastle Systems.
Office occupancy across cities peaked at an average 51.6% the week ending December 6 and dropped slightly to 51.1% this past week. New York's in-office recovery is slightly higher than that of Los Angeles, the country's second most populous city, which reported office occupancy of 45.5% last week. The data comes from 200 Manhattan buildings, nearly two-thirds of which are Class A.
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WeWork is seeking to reject eight more leases as bankruptcy proceedings for the coworking giant continue. The request, if approved, would bring the total number of leases WeWork cut in bankruptcy to 81. All six of the locations in the motion are no longer operational, and its members have either been relocated or have had their contracts transferred to the buildings' owners. WeWork is proactively engaging with real estate partners to better align its long-term financial interests and find mutually beneficial lease agreements. Four of the leases are those it took over when it bought Common Desk, a Dallas-based coworking company, in January 2022. The other locations shutting down include two Toronto spaces, a lease at 48 Yonge St., and a management contract with Hudson's Bay Co. WeWork is also rejecting leases at 71 Stevenson St. in San Francisco and its 39K SF at The Interlock development in Atlanta.