A loose coalition of New York’s top property owners including Related Cos., RXR Realty, Rudin Management and SL Green Realty have been working the phones to cajole and entice its large tenants to return to the office, according to a report by Bloomberg.
Although New York City opened its offices to non essential workers weeks ago, buildings have remained largely empty as companies continue to allow workers to remain at home. Landlords are experiencing growing angst about this state of affairs for many reasons. One is that nearby amenities are suffering and will go out of business without the foot traffic from office workers. Another is a fear that the longer employees stay away the easier it will be for companies to get used to remote working.
In some ways, this particular ship has already sailed. A handful of large tech companies including Google and Salesforce have announced that workers don’t have to return until next year. “The impact of these firms allowing work from home will likely cause a significant slowdown is space absorption across the country,” real estate pro G. Ryan Smith said in a GlobeSt.com hosted Twitter chat last week.
The office property sector had already been experiencing “downward pressure on the usage intensity of office space even before the COVID-19 crisis, according to Moody’s Analytics. Now, though, a country-wide shift towards individuals working remote because of the pandemic is expected to hit the office property sector “particularly hard in the coming years.”
The office sector—due in large part to the coronavirus—is also expected to incur stress in effective rents. Moody’s Analytics says effective rents will fall 10.4% nationally this year and as much as 21% in New York and other larger markets.
A Hollowing Out?
There are fears that these trends could permanently remake New York City’s once vibrant and robust market. “I am watching the city decay as nobody is here,” Jeff Blau, the head of Related Cos., told Bloomberg. “Now is not the time to abandon the city and expect it to be in the same way you wanted it when you get back in a year from now.”
Signs, however, are pointing to a flight from the region.
In late July, nearly 64% of real estate industry professionals contacted by law firm Morrison & Foerster believed there will be an exodus from New York City over the next two years. That figure was up from roughly 46% back at the beginning of June. In early June, 62.5% of those polled expected over 20% of their company would be working from home three years from now. In late July, 58% believed that the worst of the coronavirus pandemic is yet to come, and 75% felt that the government’s priority should be to contain the spread of COVID-19, even if it hurts the economy (rather than restarting the economy, even at the risk to public health).