New York Manhattan, Corporate Real Estate, Vacancy, Working from Home, Rents, Pandemic, Office Buildings, COVID-19, Tax Revenue
Vincent Tullo for The New York Times
As they grow accustomed to working from home, many businesses are delaying signing new leases until rents drop and the pandemic passes.
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 hesitation about committing to the city long term.
Fewer than 10 percent of New Yorkâ€™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 Yorkâ€™s financial health and its status as the worldâ€™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 Yorkâ€™s economy and property taxes from office buildings account for nearly 10 percent of the cityâ€™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. Thatâ€™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. â€śThey are putting a lot of thought into coming up with a new operating model â€” how much of my work force is going to work from home and for how much time?â€ť he said. â€śIt has never been turned upside down like this before.â€ť
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.
â€śWhen it comes to making decisions about office leases, the words are postpone, adjourn and delay,â€ť said Ruth Colp-Haber, the chief executive of Wharton Property Advisors, a real estate brokerage firm.
Executives at the meal delivery company Freshly were ready to sign a lease for 50,000 square feet of office space at 2 Park Avenue, a stately, 29-story Art Deco tower in Midtown, in March.
But the coronavirus abruptly shut New York down for several months, and the company â€śhit pauseâ€ť on its expansion, said Michael Wystrach, Freshlyâ€™s founder and chief executive. The company is still considering new office space, but he isnâ€™t sure when it would sign a lease. â€śWe are long-term believers in New York City.â€ť
During any weekday in Midtown, the sidewalks are as empty as they usually are on a Sunday, underscoring how few employees have returned. In August, a survey of major employers by the Partnership for New York found only 8 percent of employees had returned to the office and most expected to bring employees back by next summer, and another quarter of them had not decided when they would return.
Elected officials, real estate tycoons and even Jerry Seinfeld, the comedian, have issued paeans to New Yorkâ€™s resilience, arguing that city has a history of bouncing back. The city will soon be brimming with people, by their telling.
But pessimists â€” including some New York hedge fund managers â€” 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.
Investors are not expecting a quick recovery. Shares of companies with lots of New York office space like Empire State Realty Trust, which owns the Empire State Building, and SL Green Realty, which owns the immense new One Vanderbilt tower next to Grand Central Terminal, have plunged this year.
â€śI think the New York office market is going to be generally chall