SL Green Realty (SLG -2.31%) is Manhattan's largest office landlord. The real estate investment trust (REIT) owns interests in 73 buildings across the city with 34.9 million square feet of space. Because it has such an extensive portfolio, it knows the state of the city's office market better than anyone else.
While the pandemic hit that market harder than most, SL Green sees better days ahead. Here's what it had to say about the recovery in the New York City office market.
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Ending 2021 on a high note
SL Green recently reported its fourth-quarter financial and operating results. One of the highlights was the continued improvement in leasing. The company signed leases covering nearly 574,000 square feet during the fourth quarter, bringing its full-year total to over 1.9 million square feet. That was well above the company's initial expectations that it would sign leases covering 1.3 million square feet.
The company saw demand across both new and legacy buildings. It capped the year by signing two additional new leases for space at its recently completed One Vanderbilt, which is now 95.2% leased. Tenants included a global investment holding company and a Bitcoin mining company.
The office REIT also signed a 10-year, nearly 82,000 square foot lease with the world's largest independent insurance brokerage firm at 1185 Avenue of the Americas. The lease included a renewal of more than 42,500 square feet and an expansion of 39,000 square feet.
Overall, SL Green enjoyed notable leasing velocity in the portfolio, driven by New York City's ongoing recovery.
A look at what's ahead for SL Green and the Manhattan office market
SL Green's CEO Marc Holliday took some time on the accompanying conference call to discuss the current state of the Manhattan office market. He noted that:
After a solid December in the office market, we had a bit of a reset in January, which is not atypical after the holidays, but most businesses in our portfolio express their intentions to return to the office in February, and by March, we expect to be back at the same levels we saw in December, if not beyond that. The omicron virus seems to be dissipating as fast as it arrived and we are hopeful that February we will begin to return to normal.
The CEO then noted a few catalysts driving its optimism about what's ahead for the New York City office market. First, he turned to the residential real estate market. Holliday stated, "Those questioning the ability of New York City to rebound need to look no further than the resurgence in 2021 of the residential markets, which saw record high-end condo sales and a 1% vacancy in rental apartments as young people return to the city." He believes that younger office workers, who fled during the early days of the pandemic because of remote work, are now returning in anticipation of heading back to the office this year.
The other catalyst Holliday noted was the continued improvement in the office job market. He pointed out that the city added 8,000 office-using jobs in December, bringing the increase to 61,000 year over year. As a result, the city had regained more than half the office jobs lost during the pandemic. The CEO said that "there are approximately 50,000 additional jobs forecasted to be created in 2022, which should help to begin to reduce office vacancy rates in Manhattan."
Because of these catalysts, the REIT "remain[s] optimistic about hitting our ambitious leasing goals for 2022" of 2 million square feet. Holliday stated that the company's current leasing pipeline stands at 1.3 million square feet as more companies gear up to return to the office this year. He said that "the positive takeaway is that companies continue to see the office as the central and necessary hub of business activity and are making long-term commitments and expansions within the portfolio that vastly outnumber contractions."
New York City is slowly recovering
The past couple of years have been tough on Manhattan's office landlords, given the impact the pandemic had on that city. However, the city's office market is starting to make a comeback. SL Green sees that continuing in 2022, which has the REIT growing increasingly optimistic about its future. That bodes well for investors. It should help boost SL Green's stock, while enabling it to continue increasing its high-yielding monthly dividend. That makes it an attractive way to play the recovery in the Manhattan office market.
