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Two major office landlords said they don’t expect a drop-off in demand or a significant decrease in rent rates for office space as New York City navigates out of the coronavirus shutdown.
As more people look to get back to work and implement social distancing measures landlords believe demand for the amount of office space per person may increase, making up for businesses that decide to decrease their office space altogether, Silverstein Properties CEO Marty Burger and Nuveen Managing Director Nadir Settles said during Bisnow's New York Office Outlook webinar Thursday.
“Maybe when this whole thing is done, we’re balanced out, we’re in the net at the same spot,” Burger said. “We’re not going to have a reduction, we’re not going to have an addition to space.”
While some businesses, like Morgan Stanley, will decide they can operate just as effectively with most employees working from home and reduce their office space, others will increase the space they occupy, Settles said. Nuveen owns millions of square feet of office space throughout Manhattan.
“You’ll have guys that will need more space through this. I think healthcare is going to a bright spot, especially in the backdrop of the crisis. You’ll need more lab space, more biotech,” he said.
“There’s going to be a lot of technology firms that have to organize themselves differently as they were extremely dense. So I think they’ll still want to be in office space, especially in the city, so maybe they’ll take more space.”
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Burger anticipated the work-from-home trend mandated by the state’s stay-at-home order will only last in the short-term. People will want to get back to their offices, he said. He disputed the notion that anyone could predict that rent prices will go down, because there has been no indication of a loss in demand, he said.
“We haven’t proven that people will need less space yet,” he said. “I don’t think that will be the case, I don’t think people are going to need less space.”
New York office space leasing plummeted 50% in Q1 after the asset classes went on a record-breaking hot streak over the past two years. But CBRE anticipates that the market will follow what Asian countries experienced after the 2002 SARS outbreak, when lease signings took a nosedive and then went back up within two quarters.
Demand may also lean toward a break from a recent office architecture trend of dense open spaces, Burger said. Burger's comments echoed those made by Empire State Realty Trust CEO Tony Malkin during a Bisnow webinar earlier in the month, when Malkin said density would be one of the biggest considerations as people came back to work.
The two also spoke about the looming May Day, the first rent payment date to occur a full month after the shutdown. More than 90% of Silverstein Properties tenants paid rent last month, he said.
“No one knows what is going to happen in May, it’s a big unknown,” Burger said.
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