Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Nobody on Wall Street works their way up to the executive suite by playing it safe. Money managers are rushing back in to the market for refinancing office mortgages in New York City, suggesting credit investors have regained their taste for a sector once seen to be gravely challenged by work-from-home trends. Owners of four skyscrapers have issued $3bn in commercial mortgage-backed securities, the Financial Times has reported.
Is this a sign of a turnaround? Equity markets suggest not. Shares of large commercial office landlords such as Vornado, SL Green, and Empire State Realty Trust are down between 10 and 27 per cent this year. While debt investors are focused on whether landlords can make their interest and principal payments, equity investors demand growth in leasing rates, and high returns.
Those still look uncertain. New York’s current vacancy rate of 12.7 per cent has fallen slightly this year from its post-pandemic peak but remains elevated relative to the 8.2 per cent vacancy rate in 2019, according to Moody’s. The credit research agency expects the rate of open space to inch up in the coming year as new buildings are completed and come online.
Empire State Realty Trust offers a helpful window into the state of the Big Apple. More than half of its operating income comes from New York City office buildings, and another quarter from the Empire State Building. Its annual net operating income, a figure watched closely by investors in property companies, has hovered around $400mn since 2019.
True, Empire State doesn’t have the highest quality portfolio relative to some peers, and its financial performance reflects tourist traffic to its eponymous landmark, not just trends in workplace rents. But the stock is a pretty good barometer for New York City. And it is down more than a quarter in 2025, trading at half 2019’s level.
That doesn’t mean that a revival of CMBS activity isn’t reassuring. Refinancings of that kind can help set building valuations. The recycling of funds can prompt more investment in the property sector. New York’s office occupancy trends are ahead of those in other cities such as Chicago, Los Angeles and San Francisco, for example.
In the US more broadly, commercial real estate is still something that inspires caution. The country is oversupplied, even if its biggest city is enjoying the advantages of unique geography and a huge financial services sector. Credit sector investors are putting a toe back into the office elevator; their equity counterparts are still watching from the lobby.
https://www.ft.com/content/3015993f-7c6a-4283-8868-a6d49d8f7511
