The spread of the new coronavirus has already had a massive impact on the global economy and has forever changed the way we work and do business. In an attempt to stop the spread of the virus, non-essential activities closed at the start of this spring. All non-essential construction was put on hold in New York City.
The lockdown results have proved catastrophic for many small businesses, especially in hard-hit sectors like retail, hospitality, and restaurants. Everyone who can do their job from home has done so, leaving the usually busy streets of NYC eerily empty.
Techies are leading the remote work revolution
Some companies, particularly those in creative industries like media, I.T., PR, and advertising, were already allowing their employees to work remotely, either part-time or full-time. Large corporations in more ‘traditional’ and client-facing industries like financial services, real estate, or healthcare, were not work-from-home-friendly.
When the lockdown was first imposed in NYC back in March, companies were quick to respond and send some or all of their employees home to work. From tech companies like Facebook, Google, and Twitter to financial giants like JP Morgan Chase and Morgan Stanley, corporations have embraced the new work order, and some have even decided to stick to it.
Facebook and Google are allowing employees to work from home for the rest of the year. Twitter recently announced that it was taking a step further, allowing staff to work from home permanently if they want to. Given that the social media giant had hundreds of employees working in its Chelsea office space, the question arises of what will happen to the office leasing market if more businesses decide to go fully remote.
Remote work has been a debated topic for many years. Those against it cited concerns related to productivity, communication, data sharing, and security. Nonetheless, since the start of the pandemic, businesses and their employees have been forced to rethink and embrace remote work. For many companies, it has led to the realization that this transition can be a success. What does the success of this unplanned work from home experiment mean for the New York City office market?
The office space conundrum in New York City
Before Covid19, the New York City office market was in full swing, especially in Manhattan and Brooklyn. Office asking rents pushed past $100 per square foot in many neighborhoods, including Hudson Yards or the Plaza District, while demand for Class A office space and coworking space was higher than ever.
According to the Commercial Observer, office construction was also buzzing with activity, with 15 to 16 million square feet of new office space in the Manhattan pipeline. Developers were hard at work on phase two of Hudson Yards, Manhattan West, and One Vanderbilt, to only name a few – and this is just Manhattan. There were plenty of other new projects in the works in Brooklyn and Queens, as well, like Essex Crossing, Terminal Stores, The Jacx, and others.
Barclays chief executive Jes Staley told the New York Times that ‘the notion of putting 7,000 people in a building may be a thing of the past,’ while Morgan Stanley’s James Gorman said that the company had ‘proven we can operate with no footprint.’ Companies of all sizes have realized that available technologies can make remote work a reality for their employees, and it might keep them safe and healthy.
Days of Jam Packed Office Space Over
There’s no doubt that the endless debate on the pros and cons of the open office has ended abruptly with the emergence of Covid-19. It would seem that the days of jam-packed offices, buzzing open floor plans, and hotdesking are already a thing of the past. What’s more, building owners and managers will need to take drastic measures to ensure the health of those working in their buildings, if they are to secure and keep tenants.
A recent Zippia survey showed that, in general, half of all Americans want to continue working from home following the pandemic. However, not all jobs are suitable for remote work, and many employees will have to go into an office to do their jobs. But working in an office will probably never be the same.
The new and improved workspace of the future
Firstly, tenants will have to work alongside the landlord to ensure social distancing measures are adopted and respected within the workplace. That means no more cramped cubicles and small, airless meeting rooms. Cleaning and disinfection of offices and common building areas will be more crucial than ever, and it will need to be done as often and as thoroughly as possible. Ventilation is another essential factor when it comes to office buildings and a tricky one at that.
For new buildings, it will be much easier to incorporate all the latest safety, security, and health-related measures required to prevent the spread of Covid-19. However, for older office buildings, it won’t be as easy. Numerous office buildings in Manhattan still rely on window air conditioners or outdated ventilation systems. In these cases, landlords will have to invest massively in upgrading and updating building systems, if they want to find tenants and keep cash flows going. Any company looking to lease office space from now on will want to make sure the building is fitted with the latest technologies and that the landlord has taken every necessary precaution to avoid Covid-19 contamination.
Remote work as a catalyst for change
Another emerging trend in the New York City office market is subleasing. David Goldstein, a vice chairman at Savills, told the Commercial Observer that he’s ‘already seeing some signs of subleases being added to the inventory at a faster pace, and the sublease space starts to compete with direct space.’ With more and more companies allowing employees to work from home, the need for ample office spaces in the heart of Manhattan is reduced.
The smaller number of employees who come into the office daily might make companies rethink their office strategy. Renting a large office in Manhattan can be incredibly expensive. Employers might give up their need for a headquarters and switch to opening smaller, satellite offices in other boroughs or suburban areas.
Potential migration to the suburbs
Another potential outcome of the pandemic and the emergence of remote work on a large scale is a shift in rental prices across major cities in the U.S. Living in urban centers like NYC, San Francisco or Los Angeles is incredibly pricey. Still, people have been willing to sacrifice personal space and other things to benefit from what these cities offer in terms of jobs. Many will choose to keep working from home to avoid lengthy commutes and be willing to give up the social factor of working in an office for some extra personal time.
If remote work becomes the norm and workers will no longer be required to come into the office, many might choose to move out of the pricey downtown areas and into the suburbs, or even other cities. This can also lead to a shift in recruiting strategies, as employers will be able to hire the best of the best, without limiting their search to candidates living in their area.
If you want to learn more about the remote work trend and its impact on the NYC office space, below are some insights from Metro Manhattan Principal Broker Alan Rosinsky: