The Future Of The Workplace Is Uncertain, And Office Owners Are Preparing To Adapt
Employers are starting to plan their return to the office after the coronavirus pandemic-enforced year of remote work. But landlords are increasingly accepting that the use of the office may be fundamentally altered, and they may need to be flexible to meet demand.
“There is no clear answer right now. There are a lot more questions than there are answers,” Oxford Properties Group Head Of U.S. Developments Dean Shapiro said on a Bisnow panel last week. "We are living in a period of incredible uncertainty. … [There is] hesitancy from people to make long-term commitments to space, unless they have to. And the reason is nobody has a crystal ball as to what the future looks like."
His firm is a co-developer of the Hudson Yards development on Manhattan’s West Side with Related Cos. It is also now handling the redevelopment of St. John’s Terminal in Hudson Square into a campus for Google.
Shapiro said there is plenty of conjecture about what office tenants will want for their space, but ultimately, he said, most firms are now considering what will make an office worthwhile.
"The question that a lot of people are asking right now is, ‘Let’s assume we still want to have an office. What is it that is in the office that adds real value?’" Shapiro said. "I don’t think we’re going to have a real answer to this for some time.”
Panelists said a focus on amenities, health and wellness in buildings, as well as making sure the properties are sustainable and energy-efficient, are all going to be key elements when the pandemic subsides. But all agreed there are still major questions about how occupiers will use space.
“Right now, it’s very free-form,” Shapiro said.
In Manhattan, office availability has hit a record high, and leasing reached its lowest level in two decades in 2020. Few companies in the city have reversed their work-from-home policies, even after office buildings were allowed by the state to reopen last summer. Most landlords report occupancy of around 10%, even though many in the real estate industry have implored firms to return.
In recent months, the conversation has now shifted to what the long-term impacts the past year will have on the office sector, especially as many big-name firms start publicizing their approach.
JPMorgan Chase has listed 700K SF in Lower Manhattan for sublease, for example, and Yelp and PricewaterhouseCoopers have also put large blocks on the market. Companies such as Salesforce, Twitter and Facebook have said they will have remote workers going forward, and even legacy financial firms like Citigroup are only expecting workers to be in the office three days a week going forward.
Hines Managing Director Alexis Michael said the pressure is now on for building owners to make their offering more attractive than ever before.
“The buildings that are not quality products, not quality locations, are going to have vacancies for a substantial amount of time,” she said during the virtual event on reinventing office properties. “We need to keep space occupied to pay our debt service and whatnot, so I think these abilities to reposition a building smartly now that we are within this Covid environment is even more important.”
MAG Partners principal Susi Yu agreed, saying that repositioning some of the city’s older building stock should be front of mind.
“Repositioning older products to bring them up to 21st-century standards … almost becomes a hedge against the market, because you are competing against all the new buildings that were built at Hudson Yards and at World Trade Center,” she said.
“The question is, 'What do we do with Class-B and Class-C buildings not in the best of neighborhoods? … How do we reposition those into other uses, like affordable housing?'”
Gov. Andrew Cuomo has floated ideas to spur the conversion of office and hotel buildings into affordable housing, though Mayor Bill de Blasio has criticized the plan, and landlords have told Bisnow they are more likely to wait and see if workers return to their offices before they begin considering any major revamps.
CBRE Senior Director Mark Coe told the virtual audience that occupiers are now all looking at their space with the view of the “utmost'' flexibility.
“We’ve been waiting for the post-Labor Day, the post-spring, and now people are talking about [the return] for the summer and the fall when there is a level of vaccination," he said. "But I think the flexibility in the short term and the new strategies for occupying office in the long term is something we have to wait and watch.”
Some early indications are already starting to emerge. The Partnership for New York City surveyed major employers between Feb. 24 and March 8 this year to get a sense of their return-to-work plans and found half do not expect to return until September. Overall, 56% of office employees will continue to have remote work within their work schedule, employers said.
In a Bisnow survey of 1,200 commercial real estate professionals, 45.8% said they think employees should be allowed to work from home some days a week after the coronavirus crisis ends.
"There are all these tenants coming out and saying, ‘We’re going back’ … and there are the users saying, ‘We’re going to have a significant component remote,’” Michael said. “This is going to be a giant experiment that will last a few years where we see which users get it right and we see the ones that didn't, maybe didn't get it right at first adjusting their program. … People are going to have to see what works.”