Vornado Is Bullish About Its Office Pipeline

As office tenants look for new and redeveloped space, Vornado Realty Trust’s leasing team is busy, according to comments President and CFO Michael Franco made on the company’s recentQ4 2020 earnings call.

Franco says that Vornado has 300,000 square feet of leases out in negotiation, including a 55,000-square-foot lease with a tech company at 1290 Avenue of the Americas, a 33,000-square-foot lease expansion with a financial services company at 888 7th Avenue and a 75,000-square-foot lease out with a nationally recognized non-profit at 825 7th Avenue.

Also, Vornado is in discussions about an additional 1 million square feet. Many of these potential tenants would be new to its portfolio.

“We are feeling more optimistic given what we’re seeing in the first six weeks of 2021,” Franco said on the earnings call, transcribed by SeekingAlpha.com. “Tour volume is up. We are seeing more tenant proposals coming into lease space, particularly in the financial services sector, and companies are looking to take advantage of current market conditions.”

Franco says many of the companies that paused negotiations due to COVID are now opening up talks again.

“Importantly, as large companies begin to plan for their employees’ return to the office, they are also beginning to focus on their future lease expirations and interviewing brokers, as first steps in the process,” Franco says.

Still, Franco expects leasing activity to remain slow for the first half of 2021. Taking rents have come down and concessions have spiked as landlords try to fill space. Fortunately, Vornado believes things have stabilized.

The office market struggled during 2020.Office vacancies rose 240 basis points last year to 15.2%, which was its highest rate since 2010, according to Marcus & Millichap. While total absorption was negative 150 million square feet last year, it was not as bad as the 220 million square feet loss in the recession of 2001.

In a recent video, John Chang, SVP and director of research services from Marcus & Millichap, said that once vaccine distribution hits a tipping point, companies will start making space decisions and absorption will likely increase. While it won’t come back right away, he expects to see some pent-up demand to be unleashed.

“There are a lot of strategic, real estate investing options on the table right now,” Chang said in the video. “About 13% of the US population has had at least their first vaccination shot. So headway is being made. And when that number reaches about 75%, hopefully we will see some substantive changes.”