Everywhere I go, people ask if the New York City office market is doomed, offering me sympathetic looks.
The gloomy sentiment is not surprising. Headlines have promoted doomsday predictions about the health of the office sector. A real estate industry conference even recently kicked off a panel discussion posing the question: “Is the office market f**ked?” Kastle, a building security provider, posts a weekly “back to work barometer" that would have you believe that every office building in New York is half empty. It’s a flawed and misleading data point based only on a segment of buildings in which they operate, and it includes Fridays, long a sleepier day in the office, even before the pandemic.
Op-ed: Reports of the death of the office are greatly exaggerated
The reality is far different. The Real Estate Board of New York just issued a new report showing strong Manhattan numbers for in-person office attendance, hopefully reframing the discussion.
People are returning to the office with in-person midweek attendance rates of over 70%, according to the REBNY report. The brightest spot is Class A and A+ properties. In our office portfolio, according to Placer–which tracks device data and was the source for the REBNY report–One Bryant Park’s midweek building employee attendance actually exceeds prepandemic levels by 30%. In this case, more people are coming to the building than before the pandemic. Next door at 151 West 42nd St., attendance is at 90% of prepandemic levels.
Leasing activity is also healthy. For our 13 million-square-foot commercial portfolio, we are forecasting a lower overall vacancy rate this year compared to before the pandemic, and several of our properties are now achieving higher net-effective rents.
The tenant “flight to quality” is setting a new bar for office landlords like us to meet. Landlords and property managers need to provide our tenants a better in-person office experience, with a greater focus on customer service and hospitality.
Now is an opportune moment to communicate to our customers and potential customers the benefits of being in a quality office setting. Studies show the importance of quality office space for culture, mentorship, collaboration and productivity over the long term.
Microsoft’s Future of Work 2022 report found that 100% remote work can lead to feelings of social isolation and a worsening mental health crises. This is especially affecting Gen Z team members early in their careers, who more and more are reporting feeling “lonely, anxious, or stressed” about working from home, according to McKinsey.
Studies have also revealed that remote work is often championed by the later-career professionals who have already established their networks and position, contrary to the conventional wisdom that it’s the digitally savvy younger generation that favors working from home.
A recent Federal Reserve study found that working from home deprived early-career professionals of feedback and relationships, stunting their career growth. Ambitious young people prefer the office to establish connections and learn, as do employees without good wi-fi and private workspace at home. The most junior employees get it: Only 6% prefer working from home.
We appear to be at an inflection point, with more companies appreciating the value of great office space to inspire and uplift. In fact, we are already starting to see some tenants expand into roomier space to foster creative and collaborative environments, regardless if team members are in the office three, four or five days per week.
Yes, it’s a tumultuous time, and we’ll continue to see news about parts of our industry—especially those that have not made investments in modernization and sustainability–that are struggling. But New York City’s commercial real estate has never been a monolith, and every period of transition is bumpy. When the dust settles, expect a stronger, better office.
David Neil is a principal at The Durst Organization, a New York City real estate company.