Major obstacle to reviving commercial districts is changing nature of workplace. Enormous pressure on commercial real estate sector to redesign offices and incentivize companies.
Lasting Legacy of Pandemic is Changing Workplace
The sudden shift to remote working stimulated by the COVID pandemic is now becoming a lasting legacy. It just may be possible that workplaces and the business districts that house them may forever be changed.
Many employers across large metros are simultaneously offering their work forces more flexibility in terms of remote work even as the pandemic recedes. At the same time, employers are recalculating their space needs. Some employers are ending their leases and/or looking for tenants to take over their existing leases.
Office Space Available for Lease in Manhattan at Highest Rate Ever
According to Newmark, a real estate services company, 18.7% of all office space in Manhattan is now available for lease, a jump from 15% at the end of 2020 and more than double the rate pre-pandemic. In Downtown Manhattan, 21% of offices have no tenants.
Kathryn Wylde, president of the Partnership for New York City, said, “This is as close as we’ve come to (the 1970’s when half of NYC’s 125 Fortune 500 companies moved out) that type of scenario where there’s an exodus from the city, and the recovery took 30 years.”
Pre-pandemic, New York attracted 1.6M commuters daily for work, shopping, dining and entertainment/sports.
In May, only 12% of Manhattan’s office workers were back at their desks, according to the Partnership, while +60% are estimated to return in September via a hybrid remote/in-office arrangement.
Pressure on Commercial Real Estate Sector
Not only are commercial real estate firms/landlords doing everything they can to both retain existing and attract new tenants via incentives and discounts, they are also rushing to redesign their office spaces.
Cities, counties and states are as anxious about their respective commercial magnets as are commercial landlords and owners. Why? The largest source of revenue in major metros is property taxes…property taxes that pay for everything from educational systems, to maintenance to sanitation services to roads and streets, etc.
Though other major metros had higher vacancy rates pre-pandemic than New York City had, vacancy rates in offices throughout the country stood at 16.2% in March of this year. In Los Angeles, a city beginning to show signs of recovery, 24.1% of its offices currently have no tenants. And in Chicago, also a city showing signs of recovery, has an office vacancy rate of 21.9%.
Commercial Vacancy Rate in NYC Could Worsen
The commercial real estate services company CBRE indicated that things could get worse in Manhattan. CBRE noted that some 33% of leases in large Manhattan buildings will expire within the next three years. Likewise, companies have already informed their landlords that they will need less space…not just a little less space…a lot less space in the present tense and beyond.
Franklin Wallach, senior managing director for research with Colliers, a real estate firm, has said that the amount of available office space in Manhattan would likely climb as new construction is finished (approximately 14M square feet of office space in NYC is currently being built) and large companies relocate elsewhere.
Wallach said, “The long-term, overall market will recover but the when, where and how – that will vary where you are standing.”
Savills said it will likely take until “late 2022 or beyond…” for Manhattan’s office market to rebound to pre-pandemic levels.”
Thanks to The New York Times.