July 12, 2024
Prime NYC office space is leasing quickly, but Class B offices, predominantly located in Midtown South, remain vacant. Find out how property owners can drive demand back to these commodity properties while increasing their speed-to-leasing.
While office occupancy rates fare well among elite, turnkey spaces, there are still areas of many major cities that are struggling to find their footing post-COVID. One such area is located south of Midtown in Manhattan.
Between 1st and 35th Street sits a swath of buildings that once housed a fleet of midsized office tenants. Many of these tenants were tech companies that went remote in March 2020 and have yet to return to the office full or part-time.
The result? Many of these Class B properties now sit empty, and ownership groups aren’t sure how to drum up demand and keep up the leasing momentum when viable office tenants start to show interest.
The Leasing Divide Between Class A and Class B Office Properties
Even though return-to-office rates are the highest in NYC, there are still many offices sitting empty. But why? The high New York office vacancy rates follow a similar pattern happening throughout the commercial real estate industry; turnkey, Class A properties are getting leased quickly while Class B leasing lags. In the office sector, there are many reasons for this divide, and overcoming them will require property owners to listen to the market and lean on what strengths their office properties provide.
Photo courtesy of CoStar, "Developer Brings Some Switzerland to Texas, Creating Office Magnet", Haynes and Boone corner conference room, Dallas, TX
Hybrid employers demand better technology.
Office space requirements have undergone a significant shift. Historically, layouts prioritized dedicated workspaces, common areas, and conference rooms for in-person interaction. With the rise of hybrid work models (76% of employers), there's a growing demand for technology-enabled spaces. Tenants now require reliable audio/video conferencing capabilities to facilitate seamless collaboration between in-office and remote employees—an amenity many Class B office properties do not have today.
Photo courtesy of Harwood International, Harwood No. 14, Lobby, Dallas, TX
Premium common areas attract tenants.
In addition to technology, today's office tenants are looking for property owners who have put thought into common area amenities. Take the Harwood District in Dallas, a 10-building office magnet. Their immersive common areas boast restaurants, green spaces, and even a Samurai museum—a far cry from the standard break room.
Chicago's 155 N. Wacker and 110 N. Wacker, on the other hand, offer an escape from the urban grind with lush, integrated green spaces. New York's Hudson Yards goes a step further, creating a vibrant destination with shopping, concerts, and dining options, catering not only to office workers but also city residents.
This level of investment isn't present across the board. Class B office spaces often suffer from underwhelming common areas. This lack of appeal makes it difficult for property owners to attract new tenants and close deals. The key to reversing this trend and revitalizing business districts lies in creating high-end, amenity-rich common areas—experiences that entice not just potential tenants, but also passersby who might be drawn into a space that feels more like a destination than just an office building.
Location, location, location.
It’s no secret that Class A office buildings in NYC have some of the best locations throughout Manhattan. These premiere locations are just one of the reasons demand for Class A office space has made such a comeback in the years following the COVID-19 pandemic. However, location may not be a downfall to Midtown Manhattan office space, it could be the key to drawing out talent and attracting tenants.
KPG, a Manhattan-based commercial real estate fund focused on mid-market office modernization, believes Class B properties in specific Midtown South neighborhoods like Chelsea, Flatiron, and Hudson Square offer a compelling proposition for tech and media companies. These areas hold significant appeal for young professionals who value a "work and play" lifestyle.
KPG points to Google's recent expansion to 550 Washington St. in Hudson Square as a prime example of a turning tide. They believe the potential for modernized Midtown office space, coupled with the draw of these vibrant neighborhoods for young talent, could lure tech and media companies back to Midtown South if property owners are able to rise to the occasion.
Using Prophia to Quickly and Confidently Lease Office Space
It’s evident that green chutes are sprouting up all over Manhattan, but it is still a relatively tricky and unpredictable leasing environment, especially for Class B properties. The key to faster, ironclad leasing in today's market requires leveraging accurate data, perfecting your team's tech stack, and using AI to make data-backed leasing decisions, particularly for Midtown Manhattan office space or similar competitive markets.
Accurate Lease and Property Data
Beyond simple data management, Prophia fosters accuracy across your entire portfolio, ensuring you're always working with the most up-to-date property and tenant information, regardless of Class A or B. Prophia takes a multifaceted approach to achieve this:
Interconnected Documents: All your documents—rent rolls, new leases, amendments—become interconnected within Prophia. This guarantees your portfolio data consistently reflects accurate future dates and the latest contractual obligations, important for leasing both Class A and Class B properties.
Data Extraction: Prophia's technology can recognize over 200 unique contractual terms commonly found in CRE data, ensuring real estate-specific data points are accurately extracted from uploaded documents. This empowers your team to have direct access to critical, validated property information for swiftly leasing unoccupied Class A or Class B office space.
Expired Lease Management
Leasing can be a bit of a long game, meaning many property owners are thinking about filling space before tenants vacate. This forecasting can be very challenging if you don’t have a full picture of current and future tenant statuses in multi-tenant properties.
With Prophia, leasing admins can preemptively manage a vacated space before the lease expires thanks to the “schedule tenant status” feature. This gives leasing forecasts a new degree of transparency and enables property owners to see the future state of one of their properties before tenants vacate.
Encumbrance Tracking and Future Dates
Tenant encumbrances pose many challenges for leasing and asset management, especially in multi-tenant properties, common in both Class A and Class B buildings. Prophia simplifies tracking and uncovering every in-place obligation with features like the dynamic stacking plan and smart search.
Dynamic Stacking Plan: This provides a current and future layout of the property, making leasing decisions for Class A or B office space simple and easy to plan, particularly when filling a vacancy.
Smart Search Functionality: This allows users to locate specific lease terms within their portfolio. Think of it like a search engine for lease documents, eliminating manual document review and streamlining the identification of relevant tenant stipulations and obligations for leasing Class A or B properties. Furthermore, identifying patterns in lease language across a portfolio empowers better lease drafting for future tenants, ultimately optimizing asset value.
Data Centralization
If your team manages a diverse portfolio with multi-tenant properties, you could be staring down the barrel at thousands of pages of unstructured lease data. Prophia takes disparate portfolio documents and stores them in one digital location, with the ability to open access to multiple teams at once. This ensures everyone on the team, from asset managers to brokers and leasing administrators, can seamlessly access tenant data from a single source of truth and work from the same information, eliminating confusion for leasing Class A or B office space.
The Leasing Landscape Calls for Innovation
While NYC office occupancy remains low compared to previous years, there is momentum in Manhattan thanks to return-to-office initiatives, lower property prices, and office space modernization. In the coming years and months, many experts believe this will help reinvigorate office leasing and the key to striking while the iron is hot will require portfolio data optimization and going to market with ironclad and accurate portfolio data at your disposal.
The good news is, you don’t have to traverse this new leasing landscape alone. With a multifaceted tool like Prophia, leasing teams in New York and beyond can unlock a competitive edge because Prophia streamlines time-consuming daily operations, freeing up valuable time for strategic initiatives. This includes automating tasks like lease abstraction, encumbrance tracking, and identifying lease language commonalities so you can remain competitive in a market that is heating up once again.