The U.S. office market has taken a long time to find its bottom after the upheaval catalyzed by the COVID-19 pandemic. Though performance is still fragmented and risks abound, the second half of this year appears to have been the inflection point that started a new economic cycle.
Nowhere has the sector staged a more dramatic turnaround than in Manhattan, the New York borough that boasts about half a billion square feet of investment-grade commercial office space. Mary Ann Tighe is CEO of real estate services giant CBRE’s New York Tri-State Region, a role she has held for more than 20 years. Her track record of high-profile lease deals representing both New York’s premier tenants and landlords during that time makes her exceptionally well-qualified to offer a perspective on the world’s most sophisticated commercial real estate market.
Tighe recently met in New York with CoStar’s national director of office analytics, Phil Mobley, to share her thoughts. An edited transcript of their conversation follows.
CoStar: Manhattan’s office market has been on a tear for almost two years now. What makes it different from other major cities, many of which have yet to begin recovering?
Mary Ann Tighe: New York is distinguished by a couple of things. Number one is its diversity of industries. This has helped it weather economic storms from 9/11 through the pandemic. The city’s essence is openness to things that are different or unusual — just look at the number of languages and the variety of food — and so it’s possible to create a community of interest around anything. It can support the arcane, but with access to international travel, it is open to the world. Historically, that has been an economic shock absorber and a source of resilience.
Number two, we make it really hard to build here! Part of that is geographic. There are a lot of islands and inlets. There’s nowhere to make concrete on Manhattan; that has to come from New Jersey. Part of it is also zoning and regulations. The result is scarcity.
When you put those two things together, it means that organizations can find the talent base they need here, and they will pay what they have to in order to bring it together.
CoStar: How much more is left in New York’s strong run?
Tighe: We can’t bring a significant building, say, more than 750,000 square feet, to market in less than five years, and that’s assuming the site and the zoning are in place. That means we’re going to see a tight market through the end of the decade. There’s potential for a real boom because of the diversity of commercial product — think of 15-minute walkable areas all over Manhattan.
CoStar: To push back on that a little, there do seem to be some headwinds. Population growth and job growth are slowing, and immigration is not contributing as much as it has. The impact of artificial intelligence is uncertain, but there is certainly a case that it could reduce the number of jobs held by workers who use offices today. What do you think about those?
Tighe: It’s true that New York flourishes best with a more normalized level of immigration, and I expect that to return eventually because of everything I mentioned before. As for AI, because New York is such an expensive place to live, many of the jobs that could be the most likely to be replaced have already been pushed out to other markets. The kind of work that companies pay people in New York to do may be less susceptible to AI.
CoStar: With the lack of new construction underway, we are fast approaching the point — if we are not already there — at which office tenants will have to make some trade-offs. In what direction do you see them going?
Tighe: If you’re an occupier of, call it 500,000 square feet or more, it’s close to binary right now. Either you make do in your current space, putting a Band-Aid on it and going short-term until maybe 2031 or 2032, knowing you’ll sign for something new in 2028 or 2029 for the long term; or you go long in your current space — 20 years or more — and begin long-term construction to bring the space up to what it needs to be. That’s what Christie’s is doing at Rockefeller Center. Last year, we extended them all the way out to 2049. That allowed for a tenant improvement package over $100 million to upgrade the space.
CoStar: That raises an interesting topic. For landlords who may be well-capitalized but don’t yet have a big long-term tenant, where can they deploy that capital in their building to get the most bang for their buck?
Tighe: It 100% depends on the nature of the building. You have to be able to get light into the space. Slab height, the number and spacing of columns and the condition of the footings are the main things. They will let you know whether you’ve got a building to renovate or a site to redevelop.
CoStar: You have a background in fine arts. How has that served you in commercial real estate?
Tighe: I have good visual memory. That’s a muscle I developed. It’s great to have marvelous data, but you need granularity. Knowing that a building has an average slab height of 15 feet isn’t nearly as useful as knowing that it is 12 feet on some floors and 18 on others. Or maybe it has a cavernous space that could be used for something like a studio. Studying art history taught me how to remember things like that, and it also made me good at visualizing how to translate programming into a particular space. The space either works or it doesn’t, and I can usually tell.
CoStar: You have led big projects in multiple industries. How does executing a blockbuster lease to anchor a Class A office tower compare to launching a cable TV network?
Tighe: The one commonality is negotiation. I was once in Venice buying programming for the A&E network. I had been negotiating to pay dollars for what was priced in lira.
That’s actually how I got into commercial real estate. The night before coming home, I met a man and his wife in a restaurant, and it turned out we were on the same flight. The next morning, we took a vaporetto, one of the water taxis in Venice. My new friend was paying in dollars, and I knew from my work that the driver was fleecing him on the exchange rate. So I simply reached over and took the overpayment out of the driver’s hand! The driver laughed, caught in the act. And my new friend looked at me and said, “You’d be great in my old business,” which was commercial real estate. Then, as we flew back to New York, he told me about life as a broker. It was the first time I ever heard of this career option.
CoStar: As we head into the back half of the decade, what are professionals in our industry not thinking about enough?
Tighe: There are huge openings for progress in office construction. We should be using technology to produce and renovate space faster and more efficiently. It’s a great opportunity for AI. We’re further ahead on design, but bringing down the cost of construction is essential because we keep changing how we want to use the space, yet we still build in much the same way we have for 50 years.