Is this the end of expensive office space in New York??

David Goldsmith

All Powerful Moderator
Staff member

I don't buy what they are selling here. While I do think there will be a downturn in the demand for office space because tenants will realize they don't need to spend the kind of money for it when their people can actually work remotely, I don't see how that translates into residential conversions.

Firstly, I don't buy transactions to purchase office buildings being done at numbers which could make sense for "affordable housing" unless the market for these buildings has a serious price adjustment downwards. Secondly, the residential market is already overbuilt and I see demand post-Coronavirus at best being even and more likely being down.

David Goldsmith

All Powerful Moderator
Staff member

Morgan Stanley on firm’s future: “Much less real estate”
“We’ve proven we can operate with no footprint,” CEO says

In a terrible economy, Morgan Stanley CEO James Gorman appears to have found a silver lining.
“We’ve proven we can operate with effectively no footprint,” Gorman told Bloomberg Television in an interview Thursday.
The $60 billion investment bank has moved about 90 percent of its 80,000 employees to a work-from-home model, a process Gorman said had been surprisingly smooth.
“That tells you an enormous amount about where people need to be physically,” he said.
After life returns to normal, he said, he would like to see most staff return to the office, but added that it was clear the firm could operate with “much less real estate.”
“Can I see a future where part of every week, certainly part of every month, a lot of our employees will be at home? Absolutely,” he said.
While it may be good news for Morgan Stanley, it is a worrisome sign for New York’s office building owners. They have seen occupancy rates almost zero out in the last month and face another month of the same after Gov. Andrew Cuomo extended his workplace ban through May 15. While they are still collecting rent, their tenants are adjusting to working remotely.
Gorman’s comments also nod to a larger conversation playing out across corporate America about the future of working life and high-priced, densely packed office space in a post-Covid world.
Occupancy rates for commercial office space in the city plummeted in March, dropping from about 90 percent on March 9 to under 3 percent on March 23, following Cuomo’s executive order, according to the Real Estate Board of New York.

David Goldsmith

All Powerful Moderator
Staff member

I Don’t Think the New York That We Left Will Be Back for Some Years’
The features that made the city’s economy distinctive — Broadway, restaurants and museums — were hard hit and will take the longest to come back.
It took just a matter of days to shut down New York City, once the coronavirus took hold. Restarting it will take much, much longer.
The economic impact in the city from the global pandemic has been striking: Hundreds of thousands are already out of work; at least $7.4 billion in tax revenue is projected to be lost by the middle of next year.
And the changes will be felt long after New York begins to reopen its economy.
How New York City, the epicenter of the country’s outbreak, begins to recapture its vibrancy is a question consuming political, business and cultural leaders.
The very features that make New York attractive to businesses, workers and tourists — Broadway, the subway system, world-class restaurants and innumerable cultural institutions — were among the hardest-hit in the pandemic. And they will take the longest to come back.

Half of the hotels in the city are not operating, and with no reliable forecast for when tourists might return, many may stay shut. Nearly the same portion of the city’s smallest businesses — some 186,000 shops employing fewer than 10 people — could fail, city officials fear. Replacing them could take years.

The city’s real estate and construction industries, major drivers of the local economy, have all but stopped. Millions of renters are struggling to make monthly payments, fueling concern over a cascading crisis in the housing market if rent goes unpaid.

White-collar business and financial services companies, whose workers were mostly spared immediate layoffs in the shutdown, are forecast to see declining profits next year, and even losses. Some law firms have already pared down pay.

And with social distancing guidelines likely to be necessary for the foreseeable future, all facets of New York’s work life will take on new rules, routines and costs.

“I don’t think the New York that we left will be back for some years,” said Gregg Bishop, the commissioner of the city’s small businesses agency. “I don’t know if we’ll ever get it back.”

New York is not the only metropolis in the world struggling with how to safely reopen businesses and cultural centers in a dense urban settings, but no city has been more devastated by the pandemic.

The virus has claimed more than 13,000 lives in New York City, a figure that includes roughly 4,400 victims who had never tested positive for the virus but were presumed to have died of it.

President Trump has sought swift reopenings across the United States. And on Monday, three Southern states moved toward doing so: South Carolina allowed retail shops to open with social distancing guidelines, and the governors of Georgia and Tennessee announced plans to soon ease restrictions on businesses.

But in New York City, interviews with more than two dozen business executives, city and state officials and industry groups revealed the depths of the difficulties in doing the same, especially when the coronavirus is still filling hospitals and hundreds are still dying each day.

The city’s Independent Budget Office forecast that 475,000 people would lose their jobs over the next year; other economists have put the job loss far higher: 1.2 million by the end of April, mostly in low-wage jobs in restaurants, retail or transportation.

And whole industries, gone overnight, do not as quickly return.

In the late 1970s, “It took four or five years for a lot of the city to empty out,” said Kathryn Wylde, the president of the Partnership for New York City, a nonprofit business group. “It took three or four decades to bring them back.”

New York City has been the center of calamity before — the Sept. 11 terror attacks, the 2008 banking crisis, the 1970s fiscal crisis — and each time, economic life bounced back, stronger but also scarred.

“The obituary of New York City has been written more than once,” said James Whelan, the head of the Real Estate Board of New York, an industry group. “And it’s always been proven incorrect.”

But no other crisis saw the city shut down as profoundly, or for as long. Nothing before has caused public life to simply halt, everywhere, at once, nor called into question the very thing that distinguishes New York City: its concentration of people and its street life.

Large and midsize companies are beginning to plan for a return to the workplace, in phases. Some are thinking about how to use their existing office space when workers cannot be packed together as tightly, and questioning how much they should be expected to pay for it.

“Because of the need for social distancing, that space is far less valuable,” said Neil Blumenthal, one of the co-chief executives at Warby Parker, the glasses company headquartered in SoHo. “We’re all going to need more space, or use it less.”

City officials and business leaders privately expressed concern that, with executives seeing just how well their companies could operate remotely, some might decide to downsize, or move out of New York City altogether.

Others worried that workers from around the country and the world would think twice about relocating to the city — for at least for a few years — and that those already here might move out.

Gov Andrew Cuomo said that once the state allows people to gather in places like the subway or retail stores, “you’re going to see more infections.”Credit...Victor J. Blue for The New York Times
“Nobody wants to get the economy going more than me,” Gov. Andrew M. Cuomo said on Saturday.
“The tension is when you start to open business, you start to have gatherings, you put people on a bus, you put people on the subway, you put people in a retail store,” he said. “Then you’re going to see more infections. You see that infection rate rise and then you’re going to be back to where we were.”
Sign up to receive an email when we publish a new story about the coronavirus outbreak.

The economic pressure on the city’s finances is stark: Last week, Mayor Bill de Blasio released a gloomy $89.3 billion executive budget that slashed $2 billion in municipal services; the Independent Budget Office suggested that the loss in tax revenue may be even worse than the city was predicting.
Because the city’s economy is densely interwoven, reviving it is likely to be a halting process.
Swiftly shutting down the city’s more than 25,000 restaurants and bars was one thing. But getting customers back may not be a matter of simply allowing them to reopen, even with servers in masks and gloves and diners ordering from an app on their phones.

“When are companies going to start hosting events at restaurants and bars again?” said Andrew Rigie, executive director of the New York City Hospitality Alliance, a nonprofit association for the restaurant and nightlife industry. “When are the tourists going to start coming back?”
That is a question that has been haunting Broadway and the rest of the city’s entertainment sector as well.
Broadway leaders say that even if theaters require attendees to wear protective devices like masks, it seems likely that producers will stage fewer shows.Credit...Erin Schaff/The New York Times
As recently as February, New York City’s tourism promotion arm, NYC & Company, had been predicting a record number of annual visitors in 2020. That forecast has since been scrapped, and no new projections offered.

David Goldsmith

All Powerful Moderator
Staff member
“How are we going to come back? There’s no playbook,” said Vijay Dandapani, the president of the Hotel Association of New York City, an industry group.
Tourists account for nearly 300,000 direct jobs in New York City, according to the Center for an Urban Future, eclipsing the number of jobs in finance and nearly twice as many as in the city’s tech sector.
But tourists are not likely to come back to a closed city, and the sorts of activities that draw crowd and visitors — parades, performing arts, museums, sports, festivals — are likely to be among the last parts of the local economy to reopen.
The New York Times Neediest Cases Fund has begun a special Covid-19 relief campaign. All proceeds will go to nonprofits that provide assistance to those facing economic hardship.

The Metropolitan Opera is weighing whether it can restart its programming in September. Broadway is bracing for a similar delay.
And a reopened Broadway could be a changed experience, said Charlotte St. Martin, the president of the Broadway League, a trade organization. “We could see masks. We could see certificates of Covid-19-free status,” Ms. St. Martin said. “We could see fewer shows.”
There is broad agreement that the return of economic activity would rely heavily on expanded public health measures, including a huge increase in testing and a robust system for tracking down and isolating those who might be infected.
Commercial office tenants are already discussing how to implement temperature checks at building entrances. Companies are looking at staggered schedules and having fewer employees per square foot of office space.

The outbreak has necessitated many precautionary measures, including the taking of customers’ temperatures at the iFresh Market in Chinatown in New York City.Credit...Brittainy Newman/The New York Times
The trouble is, business leaders and executives say, once those measures are in place, office workers in industries like financial services and technology may not feel the pressure to return quickly.
“We have the luxury; people are working well from home,” said Mary Good, the chief people officer at Squarespace, a technology company headquartered in the West Village. “What we’re looking at are things like air flow, pathways around the office, conference rooms. Even things like elevators.”
Another major factor in the city’s ability to return is the city’s subways and buses — and so far the Metropolitan Transportation Authority has not articulated a safe service plan.

Riders and transit workers have recently been required to wear a face mask on a crowded subway car or bus. But the system is operating with less than 10 percent of its ridership: On Thursday, the city’s subway system had 470,000 passengers. The same day last year, it had 5.9 million.

Cities across Asia and Europe have added floor markings to encourage social distancing and provided hand sanitizer. In China, officials have limited capacity on buses to 50 percent, and riders have their temperature taken at checkpoints in train stations.
“It’s premature to make decisions, but we are looking at what the best practices are around the world in areas with transit agencies that have been affected by the pandemic,” said Patrick J. Foye, chairman of the M.T.A.

In the construction industry, union officials and builders are discussing how to maintain health and safety standards when the city’s roughly 35,000 dormant construction sites reopen.
State officials believe construction could be among the early sectors to return to work, along with manufacturing, because steps can be taken to keep factories and job sites safe and because working from home is not possible.
But just lifting restrictions does not guarantee a return to the way things were. “We believe that there is a way for them to mitigate any risk of transmission in their workplace,” said Robert Mujica, the state budget director. “But you need to have demand.”
On the real estate side, brokers have yet to figure out how to navigate a new challenge to their work: Buildings are not allowing potential buyers to tour homes for sale, depressing interest and sales.

“The market is nonexistent,” said Richard J. Steinberg, a real estate broker at Douglas Elliman.
More immediately, hundreds of thousands are now struggling to pay bills and meet the rent; some activists have called for a rent strike next month.

Local Democratic politicians, including Representative Alexandria Ocasio-Cortez and state lawmakers in Albany, have sought more governmental assistance for renters.
Industry executives and budget watchers fear the effects massive nonpayment of rent would have on the ability of some landlords to make routine payments, increasing the risk of delinquency and possibly foreclosure.

“Rent is part of the life blood of the economy,” said Andrew Rein of the nonprofit Citizens Budget Commission.
At Warby Parker, the reopening is going to come in at least three phases, said Mr. Blumenthal. The company — part technology firm, part retailer, part manufacturer — provides a kind of blueprint for how to return.
The first phase has already begun at its factory for cutting and fitting lenses just outside the city, considered essential business under state rules. “We’ve even rearranged our production lines to ensure social distancing,” Mr. Blumenthal said. There are staggered lunch hours, and mandatory hand-washing every hour.
The next phase would involve reopening stores, of which the company has 10 in New York.
The last people to return to work, Mr. Blumenthal said, would be the company’s roughly 300 corporate office workers, based in its SoHo headquarters.

Even then, life will be different.
“We’re not going to be able to have 100 percent of our team show up to work every day at the same time,” he said.

David Goldsmith

All Powerful Moderator
Staff member

How Manhattan’s office market responded in previous recessions: TRD Insights
Downturns in 2001 and 2008 led to quick drops and slow recoveries for office leasing

After the coronavirus crisis put much business activity in the city on ice, Manhattan’s office leasing market saw a 25 percent year-over-year decline in leasing volume in the first quarter of 2020, making it the slowest quarter in seven years. The numbers were striking, and are likely to get worse in the second quarter — but how does the market’s performance compare to previous recessions?
Data from a new report by Colliers International shows that the last two recessions — in 2001 and 2008 — led to quick shocks to the city’s office market, followed by gradual recoveries.
The Great Recession of 2008 saw a greater decline in activity at first — 18.4 percent — although leasing recovered three years later. After the 2001 recession — in which the dot-com crash was compounded with the September 11 terrorist attacks — leasing activity declined 14.1 percent in the first year and took five years to get out of its slump.
The 2008 recession also saw a sharper decline in asking rents than in 2001. Sublets rose to account for more than 40 percent of all available space in 2001 — twice the usual level.
Manhattan Office Market in Previous Recessions

Show 102550100 entries
Statistic2001 Recession2008 Recession
Leasing volume decline in first year14.1%18.4%
Years until leasing activity rebounded53
Years of above-equilibrium (>10%) availability rates46
Max sublet share of total availability (usually around 20%)41.5%26.7%
Asking rent decline from peak to trough27.9%35.1%
Showing 1 to 5 of 5 entries
SOURCE: Colliers International Research

The Manhattan office market of 2020, pre-coronavirus, was very different from the markets of prior recession thanks to the rise of tech tenants and new supply in submarkets like Midtown South and Hudson Yards, among other factors.
While the availability rate in Manhattan was a remarkably low 4.3 percent in 2000, and 7 percent in 2007, that figure has rarely dipped far below 10 percent — considered to be the “equilibrium point” between supply and demand — in the current cycle. Meanwhile, asking rents in Downtown and Midtown South are breaking new records while Midtown remains a far cry from where it was in 2008, when asking rents averaged $92.04.


David Goldsmith

All Powerful Moderator
Staff member

SL Green preparing $1B coronavirus cushion
Landlord eyes refinancing, joint ventures, debt sales to become “impenetrable”

The coronavirus pandemic has emptied SL Green’s office buildings and killed a big sale, but New York City’s largest commercial landlord has a plan.
The goal: Beef up its balance sheet and its buildings to weather several months of uncertainty.
On the operational side, the company is making plans to welcome tenants back as early as the second half of May, CEO Marc Holliday said on a first-quarter earnings call Thursday. On the financial side, SL Green is putting together the biggest pile of cash it has ever had.
“In the current environment, cash is king, and we have taken our desire for liquidity one step further by looking to increase our cash balances from the $580 million we had at quarter end to at least $1 billion over the next 45 to 60 days,” CFO Matthew DiLiberto said. “We actually call this the billion-dollar plan.”

Later in the call, Holliday elaborated on their reasoning. The $1 billion target is “a measured number, but it’s also an arbitrary number,” he said. “It’s the number we think if we have that kind of liquidity in the bank, with our liability structure and our asset structure, it makes us as close to impenetrable as we can get, and that’s where we want to be.”

If SL Green’s $815 million deal to sell the former Daily News Building at 220 East 42nd Street had not fallen through late last month, the billion-dollar target would have already been reached, Holliday acknowledged. “All we’re doing, really, is substituting different forms of capital for a sale that didn’t go as planned,” he said.

The prospective buyer, Jacob Chetrit, pulled out of the Daily News Building deal in late March after lender Deutsche Bank withdrew its support. The bank had planned to sell financing for the deal on the commercial mortgage-backed securities market, but it froze in the pandemic.

Chetrit forfeited a $35 million deposit as a result, though SL Green must go through a “long process” to get that money, DiLiberto said.

Quest for cash

To reach the $1 billion target, SL Green has already drawn down its credit facility, though it expects to pay down that balance quickly with cash from other sources. The company is close to securing a roughly $500 million refinancing for the Daily News Building, and another refinancing for 410 Tenth Avenue near Hudson Yards, where Amazon inked a 335,000-square-foot lease in December

Bringing in joint-venture partners for developments at One Madison Avenue and 126-132 Nassau Street can generate additional liquidity for the company as well, DiLiberto said, as could the sale of parts of its debt and preferred equity portfolio.

SL Green executives view the current strategy as an extension of the firm’s approach over the past several years, as it has shed non-core and suburban properties and de-leveraged its portfolio.

“We couldn’t have predicted the current moment, but we’re comfortable with where we sit today with substantial cash and liquidity, generally long-dated assets and liabilities, and a stable base of credit tenants,” said Holliday. He noted that the company had collected more than 92 percent of office rents and 60 percent of retail rents for April, or 86 percent of total rents, with a number of tenants still expected to pay in the final days of the month.

David Goldsmith

All Powerful Moderator
Staff member
I think Warren Buffet has been following me.

Warren Buffett questions the need for office space
Berkshire Hathaway boss predicts fundamental change in demand and supply

The Oracle of Omaha foretells an existential challenge for office space.

At Berkshire Hathaway’s annual meeting on Saturday — held this year via live stream from an empty arena — CEO Warren Buffett quipped that it had been more than seven weeks since he had put on a tie. And the extended period of remote work may affect more than just clothing choices.

“The supply and demand for office space may change significantly,” Buffett said. “A lot of people have learned that they can work at home, or that there’s other methods of conducting their business than they might have thought from what they were doing a couple of years ago. When change happens in the world, you adjust to it.”

Throughout the event, which lasted more than four hours, Buffett made his case for a bullish view of the U.S. economy in the long term. He also praised the government’s Paycheck Protection Program for small businesses — while acknowledging some of the controversies around its administration.

“It must be hell to administer,” he said. “It just isn’t that easy to inaugurate incredibly large [programs]. There’s going to be a certain amount of fraud.”

Buffett also said that his firm — whose holdings include Geico, Dairy Queen, railroads and energy companies — may need to lay off some workers in the short term. He also said that front-line health care, delivery and food-service workers deserve higher wages and more respect.

Economic fallout from the coronavirus has also led the legendary investor to dump his entire stake in airline stocks.

“We like those airlines but the world has changed…and I don’t know how it’s changed,” Buffett said at the meeting.

John Walkup

Talking Manhattan on
I've been wondering about this as well. On the one hand, it's obvious that giant, expensive offices filled with cubicles for backend tasks don't make much (obvious) sense in the moment. On the other hand, there is ~something~ about going to a place filled with people everyday to work. if you blow away all the WeWork hype smoke, going to those spaces always felt fun and energy-filled. My take? Offices will be back and they will be better than ever. Just give it a decade.

David Goldsmith

All Powerful Moderator
Staff member
I really have to wonder about some of these new or new-ish office projects in West Chelsea/High Line, which I never got the attraction of the location except for trendiness, the prices seem ridiculously high to me, and the industries renting there seem to be early tech adopters (i.e. most likely to be the first to work remotely).

John Walkup

Talking Manhattan on
Certainly there will be some re-pricing. But I wonder if the traditional blue-chip locations within walking distance of Grand Central and Penn Station might be sidelined by the West Chelsea/High Line ones that are both trendy and easy to get to by car via West Side Highway.

David Goldsmith

All Powerful Moderator
Staff member
How is that going to work with the city increasingly being anti-car? (Did you notice how quickly the anti-vehicle extremists jumped on this crisis as an excuse to shut down streets to traffic?)

And what happens to the millions of square feet of office space being constructed under the Midtown East rezoning?

1 Vanderbilt
270 Park Ave
350 Park Ave

Probably going to be 6 million feet just in those 3 buildings.

BTW this is probably for a different thread, but I think the anti-vehicle movement and the current administration's kowtowing to it - especially DOT Commissioner Polly Trachtenberg - is going to be a long term disaster. The tail is wagging the dog when the entire streetscape is being redesigned to suit the dogma of the 2% who commute by bicycle.

David Goldsmith

All Powerful Moderator
Staff member
No real dead cat bounce and most was just companies not moving.

Manhattan office leasing actually picked up in April, but not by much
Volume remains well below average as renewals predominate

Manhattan’s office leasing market responded quickly and sharply to the coronavirus crisis in March, dragging the quarter’s total volume to a seven-year low. April’s numbers, meanwhile, show the slightest of rebounds — although leasing volume remains far below historical levels.

Monthly leasing activity on the island rose 15.9 percent in April compared to March, totalling 1.35 million square feet, according to research from Colliers International. This was driven by a 54.4 percent increase in Midtown and a 122 percent increase Downtown, but offset by a 59.8 percent decline in Midtown South — a submarket which has now seen leasing volume drop for five straight months, since Facebook signed its huge Hudson Yards lease in November.

But as the below chart shows, these modest gains are nothing compared to where the market was a year ago — about three times as active as they are now. The burgeoning Downtown submarket did comparatively well, and was actually slightly up year-over-year, but still well below 2019’s monthly average.

Office Leasing Activity in Manhattan, by Month and Market

Show 102550100 entries
MarketApril 2020March 2020April 20192019 Monthly Average
Midtown South210,000530,0001,800,0001,370,000
Showing 1 to 4 of 4 entries

David Goldsmith

All Powerful Moderator
Staff member

Twitter, big tenant in Midtown South, says employees can permanently work from home

The neon sign declaring “#LoveWhereYouWork” in Twitters’ various offices is about to take on a new meaning.

CEO Jack Dorsey told employees in an email Tuesday that some of them would be able to permanently work from home, even after the coronavirus crisis is over.

“If our employees are in a role and situation that enables them to work from home and they want to continue to do so forever, we will make that happen,” a representative from the company said in an email. “If not, our offices will be their warm and welcoming selves, with some additional precautions, when we feel it’s safe to return.”

The company also said that “with very few exceptions,” it won’t open any of its offices until September and won’t hold any company events for the remainder of 2020. Some employees, including those who maintain servers, will still need to report to the office, as Buzzfeed News first reported.

It’s not clear what this change will mean for Twitter’s Manhattan headquarters at Columbia Property Trust’s 245-249 West 17th Street. The hip-Chelsea office — once equipped with rosé on tap, a ping-pong table, a Big Buck Hunter arcade game and, like many of its offices, a “#LoveWhereYouWork” neon sign — was part of a larger wave of tech tenants that have helped lift up the Midtown South office market over the past few years.

But what was once viewed as a strength may prove to be a vulnerability as companies decide when and if to reopen their physical offices. Twitter has taken up 215,000 square feet in Columbia’s adjacent buildings since it first started leasing space at the properties in 2014. In November 2018, the company renewed its lease at the property for five more years, despite having subleased multiple floors to Netflix and Lyft as it faced growth challenges.
It’s unclear what this will mean for the company’s Chelsea headquarters.

Twitter appears to be the first major tech company to allow employees to work from home indefinitely in response to the coronavirus. Google and Facebook have told their staff to prepare to work remotely through at least the rest of 2020, according to Bloomberg.

A representative for Columbia declined to comment. Cresa’s Christina Clarke, who represented Twitter on the lease, declined to comment.

Columbia purchased the buildings in October 2017 from New York REIT for $514 million. Twitter is the largest of Columbia’s tenants at the 17th Street property, and according to its 2019 annual report, the social media site represented $17 million in annualized lease revenue last year.

The email from a Twitter representative on Tuesday ended with an amended version of its office hashtag, “#LoveWhereverYouWork.”

David Goldsmith

All Powerful Moderator
Staff member

Office landlords: Don’t eat before watching this
The author of "Rethinking Real Estate" and a longtime proptech strategist discuss shift to an operator model, distributed workforces, and the risks to the asset class

Cheat sheet
(0:57: I: The end of office as a boring asset)
(3:47: II: The future of work)
(15:10: III: Owner vs. operator)
(28:30 IV: Space as a service)

“Greed” was good on Gordon Gekko’s Wall Street. “Boring” was good in the office market in alpha cities such as New York and London – A fully-occupied Class-A office building was about as stable an asset as you could find in real estate, and its predictable cash flows attracted pension funds and institutional investors from across the globe. But the office market is no longer boring, and that should be a wake-up call for major landlords, according to two prominent proptech strategists.

Dror Poleg, the author of “Rethinking Real Estate” and his business partner Antony Slumbers joined The Real Deal’s Hiten Samtani for a deep dive into the future of the office market. The conversation touched upon several of the biggest issues facing office landlords at the moment: how to account for a large chunk of the population opting to work from home even once this pandemic is past; how to value and finance office buildings in the face of less predictable cash flows; and how to market space in the age of social distancing.

“Companies shouldn’t ask themselves ‘can my employee be productive outside of the office?’ Poleg said. “They should ask themselves, ‘If I take the $15,000 or so that I spend putting their butt in a seat, and spend that on making them productive, including them giving a budget for satellite spaces or flex spaces, what will happen then?’ ”

Samtani said the upheaval triggered by mass working from home had made it much trickier to calculate demand for office space.

“The whole mantra of the office market,” Slumbers said, “is going to change from trying to let [lease] the most space for the most time to someone, to actually trying to let the least space for the least time, and charge someone appropriately for that flexibility.”

Both Slumbers and Poleg said that the role of the office space operator would become more and more distinct from that of the owner, more along the lines of what we see in the hotel industry. Consumer-facing providers who could guarantee a health and safety-focused, optimized tenant experience would grow in importance and would be the biggest value driver of buildings. WeWork was a financial debacle, Poleg acknowledged, but it certainly showed the demand for that kind of product and tenant experience.

In his latest chairman’s letter, Vornado Realty Trust’s Steven Roth had suggested that the big landlords band together and come up with their own co-working brand. But Poleg scoffed at that idea.

“Practically it will be very tough,” he said. “If you look at all the New York landlords, they’re all next to each other. Who decides where they go first, and where they go second?”

Poleg wasn’t done: “When the chairman of a large office landlord says something like, ‘why can’t we all join forces and create some kind of operating company for flex office?’ it shows a deep reluctance to comprehend the scope of the change in the industry,” he said. “You’re basically thinking about it like a coffee shop in your building — it basically means you don’t understand that this is your new core business — it’s not a little thing you’re doing on the side.”

David Goldsmith

All Powerful Moderator
Staff member
When someone signed a 10 year lease 7 years ago at 2013 rents, did a nice build out, and tenants are looking for shorter term leases, how does a landlord who paid top dollar a year or 2 ago compete?

Office owners brace for competition — from their tenants
Sublet offers could skyrocket as companies keep work-from-home

As companies consider longer-term plans to work from home and the economy struggles, Manhattan’s office landlords are facing the specter of competing with their own tenants to lease space.
Major tenants such as Macy’s and WeWork have already made plans to offer up hundreds of thousands of square footage on the sublet market. Others are likely to follow suit, as companies look to trim costs by renting their excess space.
“We do expect a good amount of space to hit the market,” said Richard Selig, a managing partner at the brokerage Cresa, which exclusively represents tenants. “We just don’t know what that’s going to be.”

Much will depend on how the coronavirus changes companies’ office needs, he said.
“A lot of the larger tech companies rented a lot of space for growth and now we’re seeing people work from home,” said Selig. “There’s going to be some ‘shadow space’ coming onto the market.”

Sublet availability was a little more than 20 percent as of April, according to CBRE. That figure, which measures available sublease space relative to all space available for lease, generally becomes a problem for landlords when it hits around 30 percent.

Sublessors usually offer space at a discount to what landlords’ charge, which drags down pricing overall.
“Given where we are now, the market is in position to absorb a modest amount of sublease space without it becoming a real drag on the market,” said Nicole LaRusso, CBRE’s director of research for the tri-state region. “I don’t think we expect a lot of sublease space to hit right away. I think it’s going to take a while.”

To her point, subleasing offers fell after Gov. Andrew Cuomo’s March 20 executive order directing non-essential workplaces to close, as companies focused on dealing with the pandemic and adapting to work-from-home for an indefinite period. For the same reasons, it was also not a good time to market space.

In the seven weeks following the governor’s order, Manhattan office tenants put about 920,000 square feet of space up for sublease, according to CBRE. Prior to that, the monthly average was about 900,000 square feet. On a per-week basis, the drop was a little more than one-third.

Examples of sublease offerings since mid-March include Fitch Ratings putting up a block of roughly 100,000 square feet at 33 Whitehall Street in the Financial District and e-commerce fashion site Moda Operandi making 85,000 square feet available at 195 Broadway, according to CBRE.

But activity may pick up as some companies struggle to survive and others find that many employees can be productive working remotely.

In Long Island City, Macy’s is reportedly looking to sublease 40 percent of the 867,000 square feet it signed up for at Tishman Speyer’s Jacx complex for its new corporate headquarters. WeWork is reportedly looking to sublease its global headquarters on West 18th Street in Chelsea. And Twitter, which in the past few years has leased some of its space to Netflix, Lyft and Major League Baseball, just announced its employees can continue to work from home permanently.

In addition, there’s potentially a huge supply of shadow inventory from companies that took extra space to allow for growth when they signed big leases in recent years.

When the financial giant BlackRock leased 847,000 square feet at 50 Hudson Yards in 2017, a portion of the square footage was excess space the money manager planned to use to add employees, which was a condition for receiving lucrative tax breaks.

That kind of space is often what gets dumped on the market first when the economy turns south.

During the Great Recession, the sublease availability rate climbed above 30 percent. And following the 2001 dot-com bust and the terrorist attack of 9/11, it topped 45 percent.

Lehman Brothers’s office space hit the sublet market almost immediately after the investment bank filed for bankruptcy in 2008. The crippled giant was soon followed by financial institutions including MetLife, Citigroup and Bank of America flooding the market with space.

CBRE’s LaRusso said this time is different, given the uncertainty over how companies will use their space when they return to work. Even if more employees work from home, social distancing requirements could compel companies to expand their offices.

“Employers don’t really have a good sense for their space needs because this crisis is unique,” she said. “I don’t think they’re looking to dump space as fast as they can, because they might need it.”

David Goldsmith

All Powerful Moderator
Staff member
Twitter, Facebook and Spotify all announce intent for permanent Work From Home initiatives.


David Goldsmith

All Powerful Moderator
Staff member

Revenge of the hoodies: Big Tech may be breaking up with Big Office for good
Building owners bent over backward to embrace the tech aristocracy. It could be their undoing

On Thursday, Mark Zuckerberg took direct aim at real estate’s holiest of holies: The L word.
“Over time, location will hopefully be less of a factor in how many people work,” he said in a note on Facebook, the $659 billion social media giant he built and leads. “And we’ll have the technology to feel truly present no matter where we are.”

Zuckerberg was announcing the beginning of Facebook’s permanent shift to a distributed workforce, a decision that could see up to half of the company’s 45,000 employees go remote in the next few years. It’s likely to set off a ripple effect among tech companies and rock office markets across the country.

Consider New York, where Facebook occupies more than 1 million square feet of office space at Vornado’s 770 Broadway and Orda Management Corp.’s 225 Park Avenue South. It has also signed for 1.5 million square feet at Related’s Hudson Yards campus, and is reportedly near the finish line for another 740,000 square feet at Vornado’s Farley Building redevelopment.

Last year was the third straight that tech leasing in Manhattan surpassed 3 million square feet, according to CBRE, and was the biggest year for tech leasing on record. In San Francisco and Seattle, tech firms accounted for half or more of new office leases signed in 2019, and about a fifth in New York and Los Angeles.

Now, leases are hard contracts — companies can’t just walk away from them, though many will try. What’s more likely to happen is that building owners will be forced to invest even more in health and safety facilities because tenants will demand that for their employees — and landlords have little leverage.

“Those rules where a landlord for the last 100 years would say, ‘You have a lease, and these are the terms of the lease, and you’re going to live by those terms,’ — those are out the window,” Cushman & Wakefield CEO Brett White said in a recent interview with Fifth Wall Ventures. “They are being forced to do things to support their tenants that they never envisioned, whether it’s rent reductions, rent abatements — landlords in this pandemic have learned very quickly that their existing tenant base is critically important.”

But even if these gleaming towers with their stripped-down aesthetics and open plans have a 10-year grace period thanks to current leases, what happens next? Owners have long counted on tech companies to spread like weeds — or memes — in their office buildings: Facebook started off with just 100,000 square feet at 770 Broadway in 2013, and has grown seven-fold since.

Landlords have also counted on a sort of virtuous cycle in tech leasing: Snag one big name and reap the rewards of the whole ecosystem moving to your ’hood. And that impact isn’t felt just on the office floors. A young, wealthy tech workforce with heaps of disposable income is a godsend for retail. Recall the pre-pandemic scenes at José Andrés wildly expensive Mercado Little Spain or Estiatorio Milos on a weekday afternoon.

“Any real estate decision is location-driven, but with tech tenants, what we’ve found is that that tends to be one of the primary drivers,” Colliers International’s Stephen Shapiro said in December. “In banking or in legal or accounting, you don’t necessarily get that same sense that all the talent wants to be in a two-block radius.”

But if one of the most well-capitalized, profitable companies on Earth doesn’t feel the need to make it to the office every day, how will other firms justify the costs?
The list of companies that have announced a permanent shift toward remote work is filled with heavyweights: Twitter, Shopify, Square. But that’s not the half of it. Consider firms such as Mastercard, Google and Zillow, which have announced that work-from-home is the reality for at least this year, and possibly beyond.

Whereas lost productivity was cited as one of the key reasons that remote work would never work, some tech leaders are now turning that rhetoric on its head. Zillow CEO Rich Barton tweeted that “my personal opinions about WFH have been turned upside down over the past 2 months.” MasterCard’s chief people officer, Chris Fraccaro, told Reuters that companies may find their offices at a third of capacity even once this pandemic is past. Joan Burke, chief people officer of DocuSign, went even further, telling the New York Times that “working from home is a great thing for the company and for the employees, who don’t want to get back in cars and commute for two hours. That’s lost productivity.”

The other upside of going remote for these tech firms could be financial: They paid top dollar for workers in New York and San Francisco because they believed that was necessary to land top talent. In the shift to a remote workforce, they will become more open to hiring anywhere, and anywhere that is not New York or San Francisco is cheaper. Zuckerberg told Bloomberg the company would “localize everybody’s comp on January 1,” which could mean tens of millions of dollars in savings.

Office landlords have bet the farm on tech companies, buying out lesser tenants and stockpiling space in the hopes of their expansion, designing buildings from scratch with them in mind, and offering generous concessions to name-brand firms. The great irony is that these are the companies that are finding it easiest to make the forced transition to remote work during the pandemic: Much of their core work is already distributed across engineering teams globally. The cloud is already part of their DNA.

David Goldsmith

All Powerful Moderator
Staff member

Activist investor Jonathan Litt is shorting big NYC office landlords
Land & Buildings founder sees not only “headwinds,” but “existential hurricane” for sector

Activist investor Jonathan Litt, who in recent years has pushed to turn around struggling retailers, now has a new sector in his sights.
Litt’s hedge fund, Land & Buildings Investment Management, is taking short positions in New York City landlords Empire State Realty Trust, SL Green Realty and Vornado Realty Trust, the Wall Street Journal reported.

“Numerous headwinds have weighed on New York office landlords in recent years as rent growth has stalled and values plateaued,” Litt wrote in a four-page statement on the hedge fund’s website, noting that 2018’s SALT tax deduction cap and WeWork’s struggles have compounded these challenges.

“Now in 2020, this existential hurricane has become a Category 5, as NYC is the epicenter for Covid-19 in the United States – and Empire State Realty Trust is poised to bear the full brunt of this storm,” he continued. The statement does not mention the short positions.

Major tech tenants like Twitter and Facebook, who as recently as late 2019 were emerging as a major force in New York’s office leasing market, have announced that they are reconsidering their need for office space in light of the coronavirus pandemic. Manhattan office leasing volume in the first quarter was 47 percent below the 10-year average, according to JLL.

Empire State Realty Trust chairman and CEO Anthony Malkin told the Journal that his firm thinks “New York City will remain attractive” over the long term. Vornado and SL Green did not respond to requests for comment.

David Goldsmith

All Powerful Moderator
Staff member

CDC recommendations would drastically alter offices
Health protection agency’s guidelines include temperature checks, desk spacing and single-serve coffee cups

Sweeping new recommendations from the nation’s health protection agency would drastically alter how people work in offices.
The Centers for Disease Control and Prevention guidelines range from technical — increasing air circulation and guarding against mold and stagnant water — to cultural, like recommending employees abstain from “handshakes, hugs or fistbumps.” Scientists last week warned that stagnating water in office buildings, left empty for months in some cities, could lead to the proliferation of bacteria, including Legionnaires’ disease.

The guidelines also recommend against using public transit, and instead suggest employers incentivize commuting to work alone or via single-occupancy rides. The risk of using public transit can be reduced by staggering shifts, and workers should wash their hands immediately after making the trip.

Before coming to work, employees would have their temperature taken, and be screened for symptoms — but the CDC warns against congregating in groups while waiting to be screened.
While in the office, workers should wear masks at all times and maintain social distancing whenever possible. Office guests, too, should be encouraged to wear face masks. The agency recommends that seating and office desks be spaced at least six feet apart — but if that’s not possible, it advises the installation of transparent shields or other physical barriers.

The changes would eliminate many features of American office culture. Instead of sharing a common coffee pot, offices should turn to pre-packaged, single-serve items. And workers would be encouraged to eat outside, instead of in a communal lunch room.

Some firms, including Cushman & Wakefield, had already set out to reimagine offices.
Other companies, including Facebook and Twitter, may opt to send their workers home rather than reinvent an office to adhere to the recommended practices, in order to prevent the spread of the coronavirus.

Facebook CEO Mark Zuckerberg said that allowing its employees to work from home would enable it to draw from a larger pool of talent. The company estimated that over the next decade, half its workforce will be remote.