NEW YORK CITY — Office and hotel activity are beginning to show signs of life in this city, but new construction starts will remain muted, according to a panel discussion during the 2023 New York Build Conference.
“The important part of 2023 is that tenants are starting to have conviction with whatever [remote work policy] will work for them, and they are enacting it,” said Nick Farmakis, vice chairman at London-based Savills, a real estate services company, during the panel session. “We’re coming to a resolution now where the hybrid environment is here to stay. What’s important is that there’s conviction in the marketplace.”
In the office sector, most companies in New York City are operating under a hybrid schedule. For example, most audience members at the show head into their offices at least two to three times a week, if not more.
Harry Kucharczyk, portfolio director of commercial leasing at New York City-based WeWork, said the flexible officer provider’s space in New York City is 72% leased, up from 60% last year.
“Our outlook is to double down on our key assets and start taking more space where we see opportunities,” said Kucharczyk. “Miami is a market, for example, where we’re 95% leased.”
Despite the upbeat outlook, economic headwinds threaten to carve a dent in the office recovery, according to Eric Jassin, vice president of hotels and hospitality at Chicago-based JLL, a real estate services company. Interior office construction is active in the city, but Farmakis says new office construction remains muted.
“On the office side, tenants are deathly afraid of building because of the whole process,” said Farmakis. “The cost, the supply chain delays — I couldn’t believe how long it takes to build a simple office.”
For instance, New York’s Vornado Realty Trust recently hit pause on an 18 million-square-foot project in midtown Manhattan. On the firm’s most recent earnings call, Vornado CEO Steven Roth said capital markets are “making it almost impossible to build new.”
Meanwhile, activity in the hotel sector is beginning to ramp up, according to Jassin.
“Hotel business is busy,” said Jassin. “You’re seeing people in the city, airports, airport lounges, those kinds of things where travelers are coming in.”
Yet Jassin said it’s not clear whether the uptick is due to business or leisure travel. Some hotel owners reported that this recent rebound in travel is not enough to alleviate their default risks, according to the Wall Street Journal.
Financing remains a challenge for the industry, and “probably will be harder to get,” said David Zwang, executive managing director at Toronto-based Colliers, a real estate services company, during the session. Last month, Associated Builders and Contractors Chief Economist Anirban Basu said that contractors’ outlook may dim later this year as the cost of project financing continues to rise.
The availability of new debt in the capital markets has become a top issue for commercial development in 2023 and is still muting the strength of the recovery in the city.
“New York is back,” said Farmakis. “It’s just back in a different way.”