Vornado Realty Trust predicted its office towers will be as crowded as before the pandemic in “a couple of years” – a bold prediction for the developer that, filings show, has more vacant space than at any time since Covid-19 upended the world of work.
The occupancy rate in the big developer’s New York office portfolio dipped to 84% in the first quarter, a four percentage-point decline from 2024. Officials said the decline is temporary and stems from the fact Vornado opened the doors to Penn 2, a 1.8 million square-foot tower that cost $750 million to redevelop. Universal Music Group last month agreed to lease more than 300,000 square feet in the building and officials are confident that demand for Midtown office space will grow.
“The occupancy number that we’ve reported is aberrantly low,” Chief Executive Steven Roth said on an earnings call Tuesday.
Continued demand for space at Penn 2 and other buildings in Vornado’s 21 million square-foot portfolio will drive occupancy higher, officials said. The firm added that it recently agreed to lease a 1 million square-foot building at 770 Broadway to New York University for 70 years, and if that transaction had been included in first-quarter figures its occupancy rate would have been 87%.
“From an occupancy standpoint, we always ran the business at around 95%, 96%” before the pandemic, Vornado President Michael Franco said. “I think we get a couple of years out and our expectation is we’re going to get back there.”
Investors liked the sound of that, sending Vornado shares up by 3% Tuesday, to about $38 a share. The stock has fallen by 8% this year, when shares in many office landlords have retreated on fears that trade wars could slow the economy and dampen demand for commercial space. A recent study from the Partnership for New York City showed return-to-office rates in Manhattan have barely budged since 2022.
Vornado officials are confident they own the sorts of buildings tenants want to rent – Class A towers close to public transit hubs with all the latest amenities. Properties around Penn Station could get even more valuable should the federal government follow through with plans to take over the reconstruction of the underground station. Vornado owns a lot of land in the neighborhood and Roth said he’d welcome a new partner to improve the area.
“Anybody that wants to help us fix that, we’re in favor of it,” he said.
