New York Office Tenants Renew With Huge Rent Savings

New York-based office tenant representation firm Norman Bobrow & Co. is guiding its clients to a significant cost savings. With remote work policies continuing to hamper office demand, the firm has recommended tenants negotiate long-term leases at significantly reduced rates. The firm calls the strategy “blend and extend,” and it has helped some clients save as much as $300,000 for the same office space.

New York’s office market has taken a hard hit during the pandemic. A recent report from Colliers International found that Manhattan office leasing volume was the lowest in two decades last year, with full-year activity down 55.9% over the prior year.  Norman Bobrow president and namesake Norman Bobrow believes that the market will rebound, but expects that it will take six to seven years, longer than the recovery period for any other recessionary period in recent history. In the interim, savvy office tenants can take advantage of significantly reduced rents. Bobrow estimates that rents in Midtown Manhattan are down a staggering 20%.

Many of the firm’s clients are extending their current lease term at reduces rents, and some tenants are also renewing for less space. Bobrow says that landlords have been amenable to these negotiations to avoid losing the tenant. Bobrow executed the strategy on two recent transactions. A law firm extended its lease in the Penn Station Area by seven years, negotiating the rental rate from $90 per square foot to $70 per square foot and reducing its footprint by 40%. Another law firm extended its 3^rd Avenue office lease by four years at $48 per square foot, down from $60 per square foot and 10% less space. These two leases are not alone. Bobrow has completed several lease renewals where the tenants were able to secure either a reduced rate, less square footage or both on behalf of the tenants.

While some office tenants are taking advantage of the attractive new lease terms, many are hitting the pause button and others are struggling through the new market fundamentals. Bobrow says that 30% of office tenants are not making rent payments, and in his office, commissions are down 60%. As office workers return to in-office work, he expects the market will recover, but getting there will require cooperation from leadership. “Workers need to come back since there is a terrible ripple effect with workers not returning to offices,” says Bobrow. “We see so many workers in restaurants, coffee shops and stores suffering and not being able to feed their families or pay rent. “This is very important because we need to get back to some kind of normalcy.”