New York office space vacancy has been increasing over the past 2 years (based on statistics from Cushman & Wakefield). REITs that are focused on New York office space have already seen a large decline in stock prices; many are being priced less than their equity value in the real estate they own. One such example is Vornado Realty Trust which, at the time of this article, is trading at a 24% discount. This has come amid the new introduction of the government-aided project in New York, Hudson Yards, which is causing many large corporate companies to move from their midtown offices to state-of-the-art buildings in the newly developed area. The new projects at Hudson Yards benefit from tax cuts from the government, as well as significantly cheaper land prices, compared to their midtown counterparts. 

Lower interest rates have also contributed to the issue at hand. With interest rates so low, many office space owners prefer to refinance their projects for new investments. With the new rezoning in midtown, many companies are taking this refinanced capital and building more office space in the city. 

The combination of the re-zoning, low-interest rates, and eminent completion of Hudson Yards has caused stockholders to believe that an oversupply of office space will be hitting the city in the immediate future. As a result, a large amount of hard money lenders are likely to closely scrutinize office-related loans in the City. 

In the next year or two, as excess space becomes increasingly available, pricing will likely drop, therefore lowering the value of commercial office space. Expect bridge loans to become more scarce in New York City within one-to-two years. 

 

Source:

https://www.wsj.com/articles/stock-investors-sound-alarm-about-new-yorks-office-market-11559041202