This could keep Manhattan landlords dry.
According to BMO, Tech represents 20% of tenants in Boston Properties and 17% in Empire State Realty Trust, SL Green Realty and Vornado Realty Trust. This exposure explains the technical losses in the owners’ share prices.
Boston Properties fell 32% from Wednesday’s high and posted the best results. Worst of all is SL Green, the city’s largest commercial landlord, down 41%. The S&P 500 fell 22% through Wednesday.
Boston Properties’ better performance may reflect the fact that only 27% of the portfolio is in New York. It’s 100% for Empire State Realty and SL Green, and 87% for Vornado, whose stock has been flirting with the March 2020 pandemic low. New York’s “Fear Trade” is back.
These office owners are veteran long-term players who have weathered the collapse of the dot-com bubble, the financial crisis of 2008 and the onslaught of Covid-19 in 2020. In all of these crises, Uncle Sam helped lower interest rates and in 2008 and 2020 by taking emergency measures to keep the financial system afloat and tenants to pay the rent. But cavalry will not come this time. The cost of capital is rising rapidly as the Federal Reserve raises interest rates.
About 20 years ago city officials made economic diversification a priority so New York City’s wealth would not be so vulnerable to the expansion and collapse of Wall Street. The technology, tourism, healthcare and education sectors grew. The flourishing venture capital scene has gained a foothold.
The benefits of the city’s technological embrace were clear in the dark days of August 2020, when Facebook cast a crucial vote of confidence in Manhattan’s future by committing to lease 730,000 square feet of Vornado-owned Farley Building in Midtown. Back in April, Facebook continued to expand its footprint when parent company Meta Platforms leased 300,000 square feet at 770 Broadway, another Vornado building.
But the tech sector’s ups and downs can be as volatile as Wall Street. In fact, technology and finance are closely related. Venture capital activity tends to follow the Nasdaq, with “mega-round” funding down 30% in the first quarter, followed by a 16% drop in April.
A few weeks after promising to add more space at 770 Broadway, Facebook launched its first hiring freeze on May 4th. He may need to reconsider his real estate footprint.
The BMO said the list of tech jobs in New York fell 3.5% in the past month.
Compass office space includes a 100,000 square foot headquarters at 90 Fifth Ave. The lease expires in 2025.