Omicron Has 'Done Real Damage' To NYC's Office Market. The Question Is How Much?
The New York City office market has seen momentum building for months on all fronts — leasing activity, investment sales and office occupancy — before the omicron variant arrived in December doing its best to ruin the holiday season.
New York City reported a record 11,000 cases Wednesday, a "staggering" rate of infection, Mayor Bill de Blasio said, but the lower rates of hospitalization and reports of less severe illness has divided local office players on how much impact omicron will have on the city's recovery, which has lagged behind most of the country.
“It's done real damage to the efforts to encourage return to the office,” Kathryn Wylde, the president and CEO of the Partnership for New York City, said of omicron. “Employers expected everybody to be back in the office by September 2020. We've had three or four surges of the virus that have reversed those instructions, and the longer people are working remotely, the harder it is to bring them back.”
Last week, as the case numbers shot up, companies rushed to cancel parties and reinstate remote work — Citadel, Citibank and Blackstone are all among the firms that had mandated employees return to their offices before altering their work-from-home policies.
The surge came as workplaces were beginning to formulate solid plans for their workplace arrangements, a welcome development in New York City where the economy had been badly battered by a shortage of office workers frequenting stores, restaurants and public transport.
Some are predicting this increase in cases is just a short-term blip in the office sector and the city’s recovery, but Wylde expects the disruption will have long-term impact, even if this variant doesn’t linger. Last month, the Partnership had predicted 50% of workers would be back at their desks in the city full time by the end of January. Now, she is hearing of workplaces pushing the return to office back until April.
“They don't want to reverse themselves for the fourth or fifth time. We've had so many stops and starts,” she said. “That’s the problem for employers: consistency, especially when people are already frightened and upset and stressed out.”
Joe Brady, the CEO of the Americas at the Instant Group, agreed this will force a rethink for many companies.
“Our research indicated that 50% of companies have already changed their workplace strategy,” Brady said from London, where he is stuck after testing positive for Covid-19. “I wouldn't be surprised if that number went up more … You've got the most transmittable variant that's out there that's raging. And so maybe I'm a little too close to it, but I think people need to be really concerned.”
Others are taking a more of a wait-and-see approach. SquareFoot President Michael Colacino said his workplace, which had returned to three days in the office, is now remote with plans to reassess in January. Most of their clients, he said, are doing something similar — and not making formal plans beyond that.
“I think everybody wants to take action. So the easiest thing to do is to say, 'Let's see how it is when everybody gets back from vacation,'” he said.
The sudden rise of the virus has been a shock, he said, but the shifts in the workplace are still going to take a long time to play out.
“I think landlords are still going to be OK," Colacino said. "What's going to happen is that there's going to be long-term work consequences that we're going to see play out over the next two, three or four years."
Lisa Skye, the co-founder and CEO of coworking firm Primary, said the variant has already pushed back signings for firms that had expected to move into new, flexible digs in the new year.
“People are already on pause, because they're traveling for the holidays for the next two weeks … Now they're saying, rather than sign the paperwork, let's pause to see what happens over the next two to four weeks,” she said.
Primary emerged from Chapter 11 bankruptcy restructuring this month, Skye said, with its 75K SF flagship at 26 Broadway in the Financial District still operating.
“We closed our Midtown location but fortunately, the one that stayed open is three times the size," she said. "Occupancy has been steadily increasing again over the last six to 12 months.”
RXR Realty, like most real estate companies, brought its workers back to the office early in the pandemic. The company has implemented a remote work option for employees this week, and long-term it plans to rely on vaccination mandates and mask-wearing, RXR Senior Vice President David Garten told Bisnow. As yet, no tenants in the company’s portfolio have indicated they will be changing any of their office requirements, he said.
"There is no Independence Day moment with Covid-19. This is a new normal that we're going to have to deal with,” he said. “We all have a role to play in this pandemic ... [like] getting vaccinated and getting that booster. But also important is the role we play in revitalizing our city, and that includes coming into the office."
Valerie White, the executive director of Local Initiatives Support Corp. NYC, said minority-owned small businesses have been some of the hardest-hit through the pandemic, and desperately need foot traffic.
“Many of the measures the public and private sectors are putting in place to safeguard New Yorkers against the surge currently underway will have the unintended consequence of starving these small BIPOC businesses of the foot traffic they depend on," she wrote in an email. "Government must step in and support these vulnerable BIPOC communities and small businesses that already have lost so much.”
Manhattan Chamber of Commerce President Jessica Walker agreed there needs to be a balance between health and safety and keeping businesses functioning.
“We want to keep everyone safe. But yes, these delays will continue to harm the local economy and depress small business revenues,” she wrote in an email. “But Mayor-elect Adams has indicated he wants to keep the city open and is focused on the precautionary measures we can all take to be both safe and economically viable. We can do both.”