NYC Office Market Outlook: Where Will We Work in the New Normal?

As the COVID-19 pandemic continues, information on how the various real estate businesses are faring is evolving in real time. Many owners, brokers, attorneys and other real estate professionals believe that once we are able to get to our “new normal,” the multifamily and industrial sectors are going to fare relatively well. Grocery-anchored retail centers in “A” markets seem to be prospering during the storm, while traditional retail continues its struggles due to the “Amazon Effect,” which seems to have been accelerated since quarantining practices have been employed. The one asset type that may have the most questions around it is office space.

The following questions consistently crop up regarding the future of office space: Will fewer people come into the office, with more working from home? Will property owners and businesses be required to implement more cleaning and sanitation policies? Where will rent levels be? Will each worker require more square footage? How will the co-working space providers of the world (such as WeWork, Regus, and the like) fare after we are out of quarantine?

Last week, I attended Bisnow’s New York Office Outlook virtual event featuring Silverstein Properties and Nuveen, two of the top prominent office landlords in NYC. Marty Burger, CEO of Silverstein Properties, and Nadir Settles, Managing Director for Nuveen, both discussed what they are seeing with their office portfolios, as well as addressed many other questions surrounding the future of New York City office space.

At the start of the webinar, Bisnow sent out a poll asking viewers their thoughts on the percentage they will work from home versus work in the office, when we are able to get back to somewhat of a normal business flow. The results were interesting:

• 100% Office, 0% Home: 30%
• 75% Office, 25% Home: 32%
• 50% Office, 50% Home: 26%
• 25% Office, 75% Home: 10%
• 0% Office, 100% Home: 0%

Although we do not know where these numbers were prior to COVID-19, I would expect that more respondents then would have answered 75% or 100% in the office. Since the virus has forced most of us to work from home, some people have become comfortable in the home environment and would now consider that a viable option moving forward. Even as we have become comfortable using technology such as WebEx or Zoom, there is a lot to be said for in-person interaction and a more defined split between work and home life.

When discussing vacancy rates, Burger indicated that we do not know if tenants will be taking less space when we get back -- some companies may have fewer workers, but each worker may now require more space. Alternatively, Settles believed that there will be more vacancies and landlords will have to adjust per square foot pricing accordingly. Should some smaller firms not survive the closures, additional space will also come onto the market and factor into pricing decisions.

As we transition out of quarantine, everyone is wondering what new measures we will have to take in order to help protect the health and safety of the public. It is expected that many commercial landlords will wait on guidance from national, state, and local governments before implementing additional policies that will make their tenants feel comfortable in coming back into the workplace. Burger mentioned many of those policies that he and other landlords will look to employ will be taken from the playbook that China and South Korea have implemented in their workplaces. Policies may include wearing a mask and mandatory temperature-taking when entering the building. In addition, these countries have implemented a stringent cleaning and hygiene protocol, which includes disinfecting bathrooms every other hour, cleaning high-touch surfaces every hour, and more frequently replacing air filters. Other safety measures may include converting smaller conference rooms to single-person offices, reducing the size of conference rooms, or removing every other chair from a conference room table. Even with these measures in place to mitigate any fears, the public may not feel comfortable until there is proper testing in place, or maybe even a vaccine.  

Across the board, property owners have increased communication with their tenants. They have had to play the role of ombudsmen with their tenants, and have been helping them understand things such as the CARES Act, associated stimulus programs, and SBA programs in order to help them to not just pay the rent, but to also survive.  

When discussing their current strategy, both Settles and Burger said they were initially playing defense, but now things have begun to somewhat sway towards business as usual. Settles reported that Nuveen’s strategy right now is 2/3 defense, which involves a high level of communication with tenants and maintaining their existing assets, while the other 1/3 of their time has been spent looking at office assets to potentially acquire as well as any other new opportunities. They particularly see an opportunity in the co-working space, which took a hit prior to the outbreak of the COVID-19. Burger mentioned that Silverstein is still very active and that they are in the process of closing on one development project in NYC as well as another project that is outside of NYC.

From this virtual event and other conversations in the sector, most who are familiar with New York City office space seem to feel that we will get back to business soon with some meaningful adjustments to properties and procedures. As with any downturn, there will be the potential to pursue transactions, and well-established companies are primed to do so. We will be living in a new normal, but at the end of the day, New York City will always be a place where people and businesses want to be.