New York City office space is poised to become a renter’s market post pandemic.
Some companies are considering letting employees work from home permanently, which could have significant and long-lasting effects on New York City’s office market.
New York City’s nonessential workers have already spent close to two months working from home (if they’re working at all), and the state of Manhattan’s office market shows it.
After the sector’s strongest year since 2001 last year, according to data from Colliers International, leasing activity for Manhattan office spaces plunged by 50% quarter-over-quarter in the first three months of the year, even before the COVID-19 pandemic fully took hold in the city. Leasing dropped from 3.5 million total square feet in January to a little over 1 million square feet by March as the virus arrived in the city and lockdown orders were put into place, and in April it was 62% below the average leasing volume seen in 2019.
“There’s been a great deal of speculation about how this challenge to the market is going to impact us, and if it will look like previous recessions,” said Colliers International head of research Frank Wallach. Though availability rates at the end of April were “very close to market equilibrium,” Wallach said, “there have been plenty of rumors about sublet space that may or may not return, and you read about unemployment numbers and companies laying off staff.”
Add to this the news that companies like Twitter (TWTR) are considering to let some employees work from home permanently, a shake-up in work culture that could have significant and long-lasting effects on the city’s office market.
Though the death of the office is unlikely, businesses may well need to downsize, find ways to spread workers further out in the spaces they have, and keep others working from home (or at offices outside the city) — all of which is likely to drive down prices in a market that, prior to the pandemic, had been near a 20-year peak.
Many large companies with headquarters in the city already make use of suburban spaces, and while offices in these areas are notably cheaper than their Manhattan counterparts, they’re also in shorter supply. “The office stock in places like the Westchester suburbs is limited,” said Teresa Marziano, a salesperson with Houlihan Lawrence in Westchester. Areas like Stamford [in Connecticut] offer more options, she said, “but there’s still not a lot of vacancy.”
And for now, few companies seem ready to make this type of move.
“Satellite offices are something that everyone in our world is anticipating and is speculating will happen,” said director of research and analysis Nicole LaRusso for CBRE, a commercial real estate firm. “Right now I’ve seen very little concrete evidence that it’s actually happening. I’m only aware of three New York City-based firms that are actively looking in suburban locations. Maybe it’s just a little too soon.”
“Satellite offices are something that everyone in our world is anticipating and is speculating will happen,” said director of research and analysis Nicole LaRusso for CBRE, a commercial real estate firm. “Right now I’ve seen very little concrete evidence that it’s actually happening. I’m only aware of three New York City-based firms that are actively looking in suburban locations. Maybe it’s just a little too soon.”
Moves outside the city that do take place may also well be short-lived. After 9/11, Wallach said, a large number of commercial tenants backfilled into spaces in the suburbs, only to return to the city once it was safe and feasible. “For a lot of them, it was temporary and things got back to normal,” Wallach said. “Downtown (Manhattan) currently has the tightest availability it’s seen in years.”
Though business owners might be eyeing the need to downsize space or reconsider the nature of open-office plans that have become health hazards overnight, in a period of ongoing economic uncertainty, nearly everyone is looking to keep extra expenses to a minimum.
“Nobody’s rushing out to spend money,” Marziano said. “They’re going to want to optimize what they have today. So they’re looking at ways to improve the current conditions, whether that’s splitting up their workforce to have only 20% or 40% of prior attendance on any one day, or investing in technology, like density sensors to give people some comfort.”
Add to this the fact that office leases can last anywhere from five to 15 years, and the incentive for businesses to stay put in their current space is strong.
“I only have a few clients right now that are definitely thinking about a move,” said Peter Gross, a New York City-based broker with Douglas Elliman Commercial. “Generally, the advice is that if you have the ability to wait it out a few months, now’s the time to do that, because the market is certainly going to turn in the tenant’s favor.”