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WeWork, once the biggest private sector office tenant in Manhattan,  filed for bankruptcy and a plan to terminate nearly 70 existing office space leases including 40 located in New York City alone last week. While well-anticipated, office landlords are concerned about the increased availability in a U.S. market where vacancy is at record heights, office building valuations are still dropping, and $2.4 billion of CMBS debt has significant exposure to WeWork leases.

Nearly two-thirds of WeWork’s current leases are in Class B properties in New York City,  which are on average 96 years old, according to CompStak data cited in CNN’s article, “20% of US offices are vacant. WeWork’s bankruptcy will make the problem worse.” In addition, WeWork’s leases are more heavily concentrated in Class B buildings than the NYC office market overall,which is of concern, because many are worried about office obsolescence and falling demand in that same character of buildings. In NYC Class B buildings, the average transaction size for new deals signed remains down from pre-pandemic levels and is now down 36% from 2019 to 2023, according to CompStak’s data. Additionally, WeWork’s rents in place for active leases in Class B buildings surpass the average for other existing Class B leases in New York City by 8.6%. Between 2016 and 2019, WeWork signed leases in Class B properties at starting rents significantly higher than those of other Class B leases. In 2019, this difference peaked, with WeWork’s starting rents surpassing others by over 20% in Class B/C properties.

More CompStats For the News

🎯 The Urban Land Institute 2024 Emerging Trends in Real Estate® report, released October 31, highlights remote work as a pivotal trend for property markets, akin to the impact of the 1956 Federal-Aid Highway Act that spurred suburbanization. The report cited the following changes from pre-pandemic: renewals are being signed with 12-20% smaller footprints, lease terms are 10-12% shorter overall, and tenant improvement allowances and free rent periods have risen significantly for 10-year plus leases, especially in Class B/C buildings. CompStak’s data reveals similar trends in gateway U.S. office markets: the average lease term for new deals is down 6.3% from 2019 to 2023, compared to a 10.6% decline for renewals/extensions. Among long-term transactions (120 months or longer), the concessions to overall lease value ratio has significantly risen, reaching 15.0% overall and 14.2% for Class B/C transactions. This reflects respective increases of 340 and 360 basis points from 2019.

📊 ULI’s Emerging Trends report also emphasized data centers as a growing CRE sector driven by escalating demand due to AI and large language model requirements.  Data centers are often also viewed as more recession proof because occupiers tend to sign long term deals— in CompStak’s data, the average lease term of tenants completing deals in Digital Realty-owned properties since 2018 is 89.6 months. For Equinix-owned or leased properties, the average lease term for deals signed over the same period was 212 months, boosted by a 30-year lease at 600 Jefferson Avenue in Northern New Jersey in 2022. These are two of the world’s largest third party data center operators as well as the only two current public data center REITs, per NAREIT. In the summer of 2023, the Sobrato Organization sold a 103,420-square-foot data center at 1735 Lundy Avenue in San Jose to Invesco for $86.3 million ($834 per square foot). Equinix, a current tenant, has approximately 102 months left in its lease.


🏢  Industrial inventory is rising in Chicago following an unprecedented amount of new construction, making some market watchers cautious as they anticipate potential smaller rent escalations and increased concessions in leases going forward. Although Colliers International reported an increase in Chicago industrial vacancy rates in Q3, CompStak data indicates that there is not yet a substantial rise in concessions or a plateauing of escalations. CompStak’s Chicago industrial transaction data revealed a decrease in the average number of free months, dropping from 1.4 in 2022 to 1.2 in 2023—an 18.7% decline and still below the 2019 average of 2 months. Similarly, the market’s “flattening” is not yet reflected in rental increases; average annual escalations reached 3.32% in 2023, up from 2.96% the previous year.

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