One of the frustrations of your trusty commercial real estate correspondent was the size of the office leases in 2023 in New York. They were kinda small. Not as small, perhaps, as [they were in 2022]( (even if the [very top]( deals were bigger) but nothing as big as the [1.2 million-square-foot deals]( that Facebook was cutting back in 2019. And the market was certainly not seeing the [32.6 million square feet of overall leasing]( activity that it saw in 2018. But that was early December thinking. 2023 [ended with a bang]( that surpassed anything Andy Cohen and Anderson Cooper observed in Times Square. In mid-December, the white shoe law firm [Paul Weiss took 765,000 square feet]( at Fisher Brothersâ 1345 Avenue of the Americas, the biggest lease of 2023. And that just seemed to start the ball rolling. Itâs not even the first full week of January and Spotify scored a significant[69,000-square-foot sublease]( to the payroll management platform Rippling at 4 World Trade Center. The charter school Success Academy [renewed and expanded]( to 94,000 square feet at Silverstein Propertiesâ 120 Wall Street. The Major League Baseball Players Association (the union representing baseball players) [scored a 50,000 square foot lease]( at Paramount Groupâs 1325 Avenue of the Americas. A block away, the corporate law firm Smith Gambrell & Russell [nabbed 41,000 square feet]( at 1301 Avenue of the Americas. DoorDash took [a whopping 115,000 square feet](at 200 Fifth Avenue. Finally, in a nice, big, six-figure square-footage deal, King & Spalding signed a [175,000-square-foot lease]( at Vornado Realty Trustâs 1290 Avenue of the Americas. One might notice â aside from the fact that so many of these deals are happening within a few blocks of each other on Avenue of the Americas â the preponderance of law firms among the tenants. This is probably not incidental. Law firms were responsible for about [12 million square feet of leasing]( nationwide through the third quarter of last year, according to Cushman & Wakefield (and, while the data is not final for the full year, it should surpass 2022âs record of 14.8 million square feet). Indeed, after Paul Weissâ monster 765,000-square-foot lease, the second-largest one of 2023 was Davis Polk with 710,000 square feet at RXRâs 450 Lexington Avenue. âWe are seeing strong demand from the legal sector and from law firms,â said David Smith of C&W. âLaw firms traditionally want to be in really high-quality space. Theyâre a little more office-centric than other industries.â Avison Young pegged law firm activity at 14.3 percent of all leases in Manhattan â more than double what it was in 2022. And this fits a pattern: The industry seems to make its real estate moves during turbulent periods (Avison Young noted a surge in law firm leasing in 2009 and 2010 as the economy was reeling from the Great Financial Crisis). Wait⦠turbulence is bad, right? Yes, there remains quite a bit of choppiness and uncertainty in the market. And that will probably remain the case for a while. Distress sales are happening, like In-Rel Properties [buying 7500 Old Georgetown Road]( in Bethesda, Md., for $29.85 million â which is less than a quarter of the $133 million that Rockwood Capital and Stonebridge paid for the 16-story office four years ago. Steve Wikoff [took control of the Banyan Cay Resort & Golf Club]( in West Palm Beach after the property fell into bankruptcy. In [Washington, D.C.](, and [Los Angeles](, office vacancy was up from last year, reaching 21.8 percent in the former and 27 percent (if you count vacant and soon-to-expire leases) in the latter. Contractors are [starting to worry]( that thereâs not going to be enough work in the private sector this year (although thereâs general confidence in public infrastructure projects). Heck, even TGI Fridays is [closing 36 locations]( around the country! But itâs not as though there arenât people who are preparing for the turbulence and poised to make the best of it. âWeâre uniquely positioned because weâre set up to be countercyclical,â Greg Freedman, co-founder and co-CEO at the investment firm BH3 Management, told Commercial Observer in a [profile of its three founders](. âWeâre not a fund with one mandate that can only invest in one part of the capital stack. Throughout our 14-year history, weâve played in every single piece of it.â A turnaround in 2024? Indeed, there are already signs that the market has reached (or neared) bottom and that players are taking action. Steven Caldwell, head of large loan originations at [Barclays](, said December was [his busiest month in four years]( for conduit loans. âA lot of the back-ended optimism we saw was driven by expectations that rates would ultimately come down,â Caldwell said. Certainly, [real estate pros were overjoyed]( when the Fed said that it was pausing rate hikes. âI think weâve reached an inflection point where cap rates and capital markets are starting to catch up with each other,â [said Mitch Sinberg](, senior managing director at Berkadia South Florida. âIâm seeing transactions start to simmer again. Now, we havenât seen them close yet, but with rates coming in as much as they have over the last 45 days, weâre starting to see a lot of activity on the acquisition side.â And, yes, in the last week weâve seen some money go out and some purchases which should make us all feel better: UCLA [shelled out $700 million]( to Macerich and Hudson Pacific Properties for One Westside and Westside Two in L.A. In Beverly Hills, FanDuel [plunked down $71 million]( for an office on Wilshire Boulevard. In Miami, the Church of Jesus Christ of Latter-day Saints [paid $174.3 million]( for the Beacon Logistics Park. Even office is not quite the redheaded stepchild it was a few months ago. First Mile Properties [spent $56 million]( to acquire a 287,392-square-foot office in Paramus, N.J. Speaking of redheaded stepchildren (literally), if you are in need of a real estate diversion this Sunday, listen to COâs faux pas on the matter as well as our reading of the market in the new year on our latest âBack Storyâ podcast [here](. Happy new year! [View in Browser]( | [Advertise]( | [Forward to a Friend](
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This newsletter was published 01/07/2024