New York City is not quite ready to party. True, the vaccines have routed coronavirus – a seeming miracle after last year’s horrific ‘epicenter’ death toll. Coney Island’s rollercoasters are roaring again.
Governor Andrew Cuomo and mayor Bill de Blasio have lifted most restrictions. Restaurants are at 100% capacity and sports events draw tens of thousands. Broadway and other venues look forward to reopening as soon as casts can be assembled. Times Square is again drawing tourists, while locals flock to the new ‘Little Island’ park in the Hudson River.
But there is a reason to hold the Champagne: near-empty office buildings. Still-quiet streets in Midtown and the Wall Street area tell a different story to landlords’ and politicians’ cheery forecasts.
After 14 months of working from home, many more workers and companies have settled into the Zoom groove than is healthy for the city’s future. On top of the tax-base devastation that office tower defaults would cause, the damage to stores, restaurants and service providers would be incalculable.
Some high-profile Midtown restaurants have yet to reopen, because despite large firms’ claims that they’re bringing staff back, the metropolitan area’s occupancy level remains at 18%, according to the respected Kastle Systems Back to Work Barometer. By comparison, the level is 42% in Dallas and 25% in Los Angeles.
The Memorial Day (May 30) and Labor Day (September 6) weekends are holiday markers for New Yorkers who regard the time between as their ‘real’ summer. But it will be no picnic for nervous landlords. If most workers don’t give up their remote routines, the city’s 500m sq ft of offices are in serious trouble.
The 95% of rent payments landlords such as Vornado and Boston Properties say they’re still receiving – thanks mainly to long-term leases – could go into free fall if their towers remain dark for much longer.
Corporate chiefs must work through complex variables. How much less efficient was WFH than the traditional concentration in offices? How many workers do they need on site? If fewer than before, what to do with surplus space?
Landlords must decide how tough they should be with tenants asking for rent and/or space cuts and early lease terminations. Some questions might take years to resolve.
JP Morgan Chase chairman Jamie Dimon aims to have 50% of staff “rotating” through offices by July. “We want people back to work, and my view is that some time in September/ October, it will look just like it did before,” Dimon said. But he’s also said he plans to shrink the bank’s physical footprint by up to 40%, a sobering prospect given that JP Morgan Chase is the city’s largest space user.
Goldman Sachs staff have been told to plan for a June office return. Facebook is reopening its Manhattan offices at 25% occupancy in July and aims for 50% by September. But what about the remaining 50%?
De Blasio’s claim that the city would be at “full strength” by July lifted property industry spirits. CBRE broker Robert Alexander laughed off dire forecasts that up to 40% of staff will work at home, saying it would be 5% to 10% at most.
RXR chairman Scott Rechler said most of his tenants were planning to start returning after Memorial Day “and working their way up to Labor Day”. Rudin Management CEO William Rudin said: “Everyone is starting to come up with plans to get employees back into the city and to their offices.”
But obstacles remain, for example impractical New York State workplace social-distancing rules such as 6ft spacing and ridiculous one-way doors and corridors. They made sense a year ago but haven’t caught up with today’s reality.
Companies continue to treat remote staff with kid gloves. “They need to tell them ‘come back on September 6 or don’t come back on September 7’,” one landlord who didn’t want to be named told me. But notoriously cautious corporate lawyers warn that an employee who contracted Covid-19 from anywhere could blame it on the company.
Employers and landlords have three months to make Midtown and Downtown whole again. The city’s future depends on whether they can.
Steve Cuozzo is real estate correspondent for the New York Post