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Demand is rising for top-quality offices in New York

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Amazon ( AMZN ) hunting for space, Blackstone more optimistic

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Blackstone is looking for purchase of stake in NY office

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Some firms switching to five days a week of in-person

attendance

By Saeed Azhar, Matt Tracy and Carolina Mandl

NEW YORK, March 7 (Reuters) - Investors including

Blackstone and wealthy individuals are scouting for

office properties in New York as companies call employees back

to the office, fueling a nascent recovery in the battered

commercial real estate market.

The increasing appetite for offices in New York and beyond

could signal a broader economic recovery for major cities

worldwide as many workers return in person five days a week,

lifting demand for local services. The turnaround comes after

investors shunned emptied-out commercial spaces for years after

the pandemic.

Real estate investors, consultants and bankers say demand is

rising for top-quality offices in New York, spurring them to

strike more deals. Among the bullish signs are Amazon ( AMZN ) hunting

for space, BXP holding talks with tenants for new building and

Blackstone getting more optimistic on the sector.

Blackstone's President Jonathan Gray said offices in New

York City and San Francisco offer compelling value.

"In New York, you have financial services firms who are

growing rapidly, you don't have any new building," Gray told a

conference on Tuesday. "In San Francisco, the values fell very

hard, in some cases 75%, and AI and technology innovation really

(are) housed in San Francisco."

Blackstone had drastically cut its exposure to office in

recent years. Its current office exposure accounts for less than

2% of its real estate holdings, versus more than 60% in 2007,

according to company data.

Investors struck more office deals last year as the terms

for leases improved and tenants became more active, consultants

said.

Among those, Blackstone is looking to purchase a large

stake in the office building at 1345 Avenue of the Americas in

Manhattan. It has declined to comment on its investment plans.

"More deals of scale are definitely coming," said David

Giancola, a senior managing director of capital markets in the

New York office of JLL.

However, distress still exists for older Class B and C

buildings, some mid-block or buildings which have no view and

are impossible to rent, said Ran Eliasaf, founder and managing

partner at real estate private equity firm Northwind Group.

Economic growth and lower interest rates are also

boosting demand for offices, senior industry executives said.

"The world is moving back to work and back to in-person

work, no question about it," said Owen D. Thomas, chairman and

CEO of Boston-based real estate investment trust BXP Inc ( BXP )

. "Real estate is a financial asset driven by interest

rates, so that's helpful," he added.

BXP is in talks with four to five anchor tenants to build a

46-story tower in Midtown Manhattan, Thomas said.

The commercial project is not far from JPMorgan Chase's ( JPM )

new global headquarters, which has space for 14,000

employees and will be completed by the end of this year.

With some of the largest office occupants in the U.S. -

such as Amazon ( AMZN ) and JPMorgan ( JPM ) - switching to five days a week of

in-person attendance, firms could encounter space shortages

after they shed offices over the last five years, JLL Research

said in a note.

Amazon ( AMZN ) is looking for more space in New York, according

to a source familiar with the matter. The company declined to

comment.

NEW BUILDING

When billionaire Ken Griffin decided to combine the offices

for his hedge fund Citadel and market-maker Citadel Securities

in midtown roughly three years ago, he could not find enough

space. He decided to construct a new building instead, getting

ahead of a wave of 5-day mandates that are filling up offices.

Griffin, alongside Vornado Realty Trust ( VNO ) and Rudin

Management, is developing a 62-story skyscraper at 350 Park

Avenue with space for 6,000 people. Citadel and Citadel

Securities will serve as anchor tenants for the building, which

is expected to be completed by 2032.

Employees at Griffin's firms will start moving to a

temporary location next year so that the current building, a

30-floor structure from 1960, can be demolished.

The outlook is reflected in cap rates, a measure used by

investors to gauge a property's profitability and risk. Cap

rates rose sharply after the pandemic, making it less attractive

for investors to buy properties.

After peaking at 6.99% in the first quarter of 2024, the

gauge fell to 5.77% by the end of the year, signaling better

returns for investors, data from research firm Trepp showed.

Sales volumes for commercial properties in the U.S. also

rose 9% in 2024 after falling by half in 2023, according to

property consultants CBRE ( CBRE ).

Occupancy has climbed after declining sharply during

pandemic shutdowns and remote working, analysts said.

According to data from commercial real estate advisory firm

Avison Young, office utilization in Manhattan was 79.9% in

January 2025 versus 66.9% across offices in major and secondary

cities in the United States compared to the pre-pandemic level.

The city's commercial buildings have diverse tenants

from a range of industries, including finance, insurance and

technology, said Doug Middleton, vice chairman with CBRE's ( CBRE )

Investment Properties group. Other cities are more reliant on

one or two industries, he added. Wealthy individual investors

are also starting to step back into investments in

higher-quality class-A offices, spurring the bank to finance

deals, said Nishi Somaiya, Goldman Sachs' ( GS ) global head of private

banking, lending and deposits.

"Our CRE loan portfolio in the private bank is growing,

which tells you that there's a lot of demand and confidence in

opportunities within the sector," she said.

In Europe, soaring demand for high-quality offices is

pushing rents to records in central London, giving investors

cause for optimism even as overall office sale volumes remain at

multi-year lows.

"People got very excited post-COVID that this was the end of

the office - it was never the end of the office," said Hugh

White, a London-based senior director at BNP Paribas Real

Estate.