Manhattan’s Office Buildings Are Empty. But for How Long?



Even as the coronavirus pandemic appears to recede in New York, corporations have been reluctant to call their workers back to their skyscrapers and are showing even more reticence about committing to the city long term.

Fewer than 10 percent of the New York’s office workers had returned as of last month and just a quarter of major employers expect to bring their people back by the end of the year, according to a new survey. Only 54 percent of these companies say they will return by July 2021.

Demand for office space has slumped. Lease signings in the first eight months of the year were about half of what they were a year earlier. That is putting the office market on track for a 20-year low for the full year. When companies do sign, many are opting for short-term contracts that most landlords would have rejected in February.

At stake is New York’s financial health and its status as the world’s corporate headquarters. There is more square feet of work space in the city than in London and San Francisco combined, according to Cushman & Wakefield, a real estate brokerage firm. Office work makes up the cornerstone of New York’s economy and property taxes from office buildings account for nearly 10 percent of the city’s total annual tax revenue.

What is most unnerving is that a recovery could unfold much more slowly than it did after the Sept. 11 attacks and the financial crisis of 2008. That’s largely because the pandemic has prompted companies to fundamentally rethink their real estate needs.

Robert Ivanhoe, a real estate lawyer at Greenberg Traurig, said he had about 20 clients that had postponed searches for new offices. “They are putting a lot of thought into coming up with a new operating model — how much of my work force is going to work from home and for how much time?” he said. “It has never been turned upside down like this before.”

Real estate data confirms that. The number of office leases signed from January through August totaled 13.7 million square feet, less than half as much as the first eight months of last year, according to Colliers International, a real estate brokerage firm. By contrast, leasing hit an 18-year high at the end of last year with nearly 43 million square feet of new leases and renewals.

“When it comes to making decisions about office leases, the words are postpone, adjourn and delay,” said Ruth Colp-Haber, the chief executive of Wharton Property Advisors, a real estate brokerage firm.

But pessimists — including some New York hedge fund managers — see dark days ahead. They contend that companies will tell most employees to stay away until a vaccine is widely distributed and perhaps for much longer.

Which of those two visions is closer to being right will help determine how quickly New York regains its energy, economic health and tax revenue.

Some companies with leases that are ending this year or next appear to be kicking the can down the road, signing short-term extensions rather than committing to typical deals that last several years. In recent weeks, NBC Universal extended a lease for a secondary office at 1221 Avenue of Americas and the Stroock & Stroock & Lavan law firm did the same for its office downtown. But they both did so for just a year, according to Colliers. A spokeswoman for NBC Universal declined to comment and Stroock & Stroock did not return a call and multiple emails.

In normal times, owners of large office buildings would typically not entertain a one- or two-year lease extension for a large tenant, said Franklin Wallach, senior managing director of the New York Research Group at Colliers. “They see that new leasing activity has dropped off while the amount of sublet space coming into the market is on the rise, so the average landlord wants to keep the tenant in the building.”

Retail tenants in Hudson Yards, the sprawling development on the Far West Side of Manhattan, may be reeling, but companies are still moving in to the project’s office buildings.

“They still believe New York is the place to have their business and grow their business,” said William C. Rudin, chief executive of Rudin Management Company. “The Amazon commitment is amazing; the Facebook commitment is amazing.”

Some landlords see encouraging signs in their office buildings in the suburbs, where social distancing is easier because people tend to commute by cars. This, they argue, suggests that employers and workers want to return to the office and more of them will make their way back to New York, too.

Anthony E. Malkin, chief executive of the Empire State Realty Trust, which owns the Empire State Building, said the number of people coming into his office buildings in Connecticut in mid-August was 40 percent of what it was a year earlier, and up from next to nothing in the spring because of the strict lockdown policies in place at the time. “That is a very high number and it’s growing.”



Sahred From Source link Real Estate

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