MARKET INTEL: Trading Up: Snapshot of Post Pandemic Relocations

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TAMI Tenants’ Relocation from Class B to A Buildings

Tenants’ Relocation to Newer Office Buildings

Are Relocating Tenants Reducing their Space Needs or Expanding?

FIRE and TAMI Sectors are Dominating Relocations

Select Major FIRE and TAMI Relocations

Grand Central and West Side Submarkets

CompStak is settling into its new office at 675 Avenue of the Americas after relocating from 36 Cooper Square earlier this fall. That got us thinking—what has driven companies to relocate over the past two-plus years, and are there any clear trends in where tenants decided to move?

CompStak analyzed its own data set of relocations in Manhattan since the pandemic began. Now, nearly three years after COVID-19 accelerated many of the changes in how we work and use office space, many tenants have reevaluated their space needs. While some tenants decided to remain in their existing space, others elected to take advantage of market fundamentals to move to better-quality space for both reduced and expanded footprints. Check out The Real Deal’s article sharing some of our findings.

Using our data, we uncovered the following trends about this snapshot of relocating tenants:

• More than 27% of technology, advertising, media, and information (TAMI) tenants relocated from Class B to Class A buildings
• A majority of tenants relocated to newer (more recently built) office buildings
• More than 30.5% of relocations moved to new or renovated construction (built or majorly renovated since 2015) since April 2020

MORE THAN 27% OF TAMI TENANTS RELOCATED FROM CLASS B TO A BUILDINGS

With so much attention on “the flight to quality” as the dominant emergent trend of the post-pandemic office market, CompStak compared the age and class of buildings absorbing relocations in relation to companies’ previous offices, with a focus on the TAMI and financial, insurance, real estate (FIRE) sectors.

Overall, more than 63% of tenants moved from one Class A building to another, but 13.4% upgraded their space from a Class B to a Class A building.

Among TAMI tenants specifically, more than 37.3% moved from one Class A building to another, but more importantly, 27.1% moved from Class B to Class A, inking deals in higher-quality buildings. The movement from Class B to Class A buildings among TAMI tenants was most notable, as most FIRE tenants moved within the Class A sector.

MAJORITY OF TENANTS RELOCATED TO NEWER (MORE RECENTLY BUILT) OFFICE BUILDINGS

As another marker of building quality, CompStak also analyzed the building age of relocated tenants’ new offices over this period. And not surprisingly, most tenants did move to buildings that were newer than their previous locations. Among TAMI tenants analyzed, 65.7% moved to newer buildings, which were on average 39.7 years newer.

Similarly, 64.4% of all FIRE tenants moved to newer buildings, and these buildings were 40.6 years newer on average.

MORE THAN 30.5% OF RELOCATIONS MOVED TO NEW OR RENOVATED CONSTRUCTION (BUILT OR MAJORLY RENOVATED SINCE 2015) SINCE APRIL 2020

In addition, many tenants elected to move to new construction, like Zero Irving or One Vanderbilt, or to properties that have undergone significant recent renovations, like One Madison Avenue. According to CompStak’s data, more than 30.5% of relocations tracked moved to new or renovated construction (built or majorly renovated since 2015) since the earliest days of the pandemic in April 2020.

ARE RELOCATING TENANTS REDUCING THEIR SPACE NEEDS OR EXPANDING?

CompStak evaluated  relocating tenants who signed deals for 75,000 square feet or more in our data and found that:

• 50% expanded;

• 42% contracted;

• 8% relocated to a similar footprint

Among the 10 largest relocating FIRE tenants, six expanded while the remaining four relocated to smaller footprints. Among the 10 largest relocating TAMI tenants, expansion was more common, as nine of the 10 largest TAMI relocations tracked involved commitments to larger spaces than occupied previously. 

From April 2020 to the third quarter of 2022, the average relocation deal in Manhattan, according to CompStak’s data, was about 27,010 square feet among FIRE tenants and 33,444 square feet for TAMI tenants. These averages were on a par with transaction size for tenants that opted to stay in place during this period—the average transaction size for renewing or extending FIRE and TAMI tenants was 28,655 and 33,207 square feet, respectively. The average size for renewing/extending FIRE tenants has remained steady since 2018, while it has declined over the past three years for the TAMI sector.

FIRE AND TAMI SECTOR DOMINATED RELOCATIONS SINCE 2020

Since April 1, 2020, CompStak has tracked the following industry breakdown of relocating tenants within New York City and found that the FIRE sector (46.1%), followed by the TAMI sector (16.1%), accounted for the largest share of relocating tenants. In addition, the FIRE sector accounted for the largest share of relocations by total square footage.

Relocation by Industry by Number of Transactions, April 2020-Present

 

SELECT MAJOR FIRE AND TAMI RELOCATIONS

Over the past year, some of the top relocations included relocations to new construction or buildings undergoing major renovations. Among the most prominent examples are IBM’s move to One Madison Avenue and DE Shaw’s move to Two Manhattan West. Construction of both is expected to be complete in 2023.

GRAND CENTRAL AND WEST SIDE SUBMARKETS GAINED LARGEST SHARE OF RELOCATIONS

Overall, the submarket absorbing the most net relocations over this period was Grand Central. Relocations to SL Green’s One Vanderbilt certainly boosted this submarket’s totals over this period, but relocations to Grand Central were strong, even excluding that building’s substantial activity. Did migration patterns during the pandemic to the suburbs or preference for offices closer to transit stations influence this decision? Grand Central’s activity suggests it may have been boosted by the area’s robust transit options, including Metro-North, which reaches suburbs north of New York City, multiple subway lines, and the soon-to-be-opened Long Island Rail Road access. East Side access, which will connect the LIRR and service from Long Island to Midtown East for the first time via Grand Central Madison, a new terminal along Madison Avenue between 43rd and 48th streets, is expected to open in late 2022. As migration patterns changed during the pandemic, there was a greater appetite for ease of access and more convenient commutes. 

This contrasts with the prior locations tracked—the submarket where most of these firms were located before relocating was Madison/ Fifth Avenue. 

Following Grand Central, the submarkets posting the largest net gains from relocating tenants (comparing total previous submarkets with new submarkets) were all located on the West Side, including Times Square, Hudson Yards, Hudson Square, and the World Trade Center. CompStak’s data demonstrated that more than 61% of tenants moved to a different submarket from their original location.

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