NYC Sees Rise in Energy-Related Leasing

New York City hopes to source 70% of its power from renewable sources by 2023, according to a report released by CBRE.  Based on the positive response of this transition to date, all indications point to the start of a new trend.

Since 2019, New York has committed over $50 billion to the state’s energy transition. Most of this funding has gone to offshore windmills, solar arrays and battery storage, electric vehicle charging stations, and a nearly 350-mile-long clean energy transmission line. These projects are in various stages of development.

Between 2019 and 2023, 15 companies secured 114,705 square feet of space in the solar market; 7 companies signed leases totaling 127,136 square feet in the offshore wind sector; and 2 companies signed leases totaling 21,687 square feet in infrastructure.

“While still in its infancy, the related leasing trend in NYC shows similar signs of growth as the tech sector 15-20 years ago and life sciences more recently,” said David Stockel, who arranged leases for green energy companies in NYC last year.

Local production of renewable energy provides economic development opportunities that New York could not access in a fossil-fuel driven economy. Since 2018, the city has experienced three of the best years for energy-related leasing, with 65% of energy-related leasing for companies involved in renewables. This is a significant increase from the 26% of all energy leases signed between 2000 and 2017.

In 2022, a record 13 energy-related firms, including a record nine renewable companies, signed leases. This followed a strong year in 2021 when 10 energy-related leases were signed, of which seven were renewable firms. Then, in 2023, eight energy-related firms, all renewable, signed leases in NYC.

In addition, many of New York’s renewable energy projects are backed by investment firms also located in New York. In fact, 27 private equity and business services firms, all with a specialized focus on energy-related investment, have leased 400,000 square feet in Manhattan since 2018. Moreover, 12 of these firms hold all-renewable portfolios.

While the state’s energy transition has numerous upsides for the city’s property markets, it is not without its challenges. In fact, several regulatory and financial challenges remain, with rising development costs at the forefront. Yet, the state appears committed to attaining its goal of a clean grid by 2040.

Developing an in-state energy industry will generate some demand for commercial real estate as companies involved in operating and maintaining green infrastructure and managing the power they generate set up shop. Energy-related enterprises are not expected to become a major occupier of office space. However, the move towards a carbon-free grid will create new opportunities for green energy companies, engineering firms, and the funders who back these ventures.