Financial Overview

Vornado Realty Trust recently announced a net loss of $9 million for the first quarter of 2024, representing a decline in occupancy within its office portfolio. Occupancy rates dipped to 89.3%, down from 90.7% in the previous quarter, Q4 2023. Additionally, the funds from operations (FFO) for the quarter were $104 million, marking a decrease from $119 million during the same period last year.

Market Insights and Leasing Activity

Michael Franco, Vornado’s president, noted during an earnings call that the company concluded a significant number of leases in December, totaling 2.1 million square feet. However, he anticipated a quieter first quarter in terms of transactions due to the active negotiation processes within their deal pipeline.

Franco identified recent move-outs at key Vornado properties including 770 Broadway and 280 Park Avenue as the primary factors behind the decrease in office occupancy. “We are pleased to report that we have already taken care of half the 2024 and 2025 expirations in these properties, with more activity on the horizon at each,” he stated.

Future Projections

Looking ahead, Vornado management is optimistic about a rebound later this year, with potential for a robust performance in 2025. CEO Steven Roth suggested the company is actively seeking to acquire undervalued properties. “We continue to prospect for good real estate in distress, where our best-in-class operating platform can be helpful to the lender. We expect these opportunities to accelerate,” he stated during the investors’ call.

Franco highlighted signs of recovery in New York’s office leasing market, despite a slowdown in activity during the first quarter. “There is a healthy backlog of activity with a number of large deals in the works,” he mentioned. He pointed out that overall tenant space requirements are trending upward, while sub-lease space is decreasing.

Sector Trends and Activity

The financial services and legal sectors remain strong contributors to leasing activity, both of which are experiencing growth. Franco also mentioned a resurgence in the tech sector after a period of downsizing. “Our experience is, when they grow, they tend to lease big chunks of space,” he added.

Vornado’s leasing pipeline is currently robust, with 370,000 square feet of leases under negotiation and an additional 2.5 million square feet of proposals in various stages. “Much of this activity is not only addressing current vacancy, but also forward-looking expirations,” Franco concluded.

Optimism for Recovery

Roth expressed a strong belief in the potential for an office market recovery. “With frozen supply—i.e., no new developer office starts and none on the horizon—tenant requirements picking up and vacancies shrinking, I couldn’t be more optimistic about the future,” he stated.

Additionally, Roth noted a significant uptick in demand for prime retail locations, particularly from luxury brands competing to secure prominent spots along Fifth Avenue. “The gold rush on the part of the luxury brands to own, control, and dominate the very best locations is accelerating,” he remarked, emphasizing the positive effects on New York City’s retail space.