From a small northwestern observatory…

Finance and economics generally focused on real estate

New York Office Space

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Let’s start out by admitting that New York City real estate is unique. In very many ways, what happens in NYC has no bearing on “Anytown America”. However, COVID has put pause to many economic rules-of-thumb, this one included.

I was struck by a CNN.com Business article this morning by Allison Kosik titled “New York City Hasn’t Had This Much Empty Office Space in Three Decades.” According to a Cushman Wakefield report, cited in the article, office space vacancies in Manhattan alone reached 16.3% in the first quarter of this year, up from 11.3% last year. By some estimates, there is about 240 million square feet of office space on that island, so about 12 million square feet went vacant in 2020, directly attributable to the COVID-19 recession.

Now, as Ms. Kosik pointed out, this represents people who are no longer working in an office, but working from home. In my experience (and I “zoom” with folks in NYC a lot) these folks are still busy, but happily telecommuting. What’s more, these aren’t temporary shifts — these shifts are permanent enough to cause their employers to give up the space.

Is this a trend? Will other employers continue to facilitate work-from-home? I would note that even 10 years ago, technology would probably not have supported this on a wide-scale. “Zoom” (and all of the other services, like Team and Webex), ubiquitous high-speed connectivity, smart-phones, and secure cloud servers are all necessary for this to work. However, 100 years ago, the office of today could not have been supported without technology like computers, telephones, and even air conditioning. Has COVID really triggered a sustained shift in the American workplace landscape?

I would have to note that the thousands and thousands of office workers who now work from home previously supported a vast secondary and tertiary network of businesses. Working from home means you don’t grab lunch at the corner deli as often. You don’t buy “work clothes” as often — if at all. Parking garages, busses, and subways all see downturns in business. Demand for Yellow Cabs in New York City has collapsed, and I don’t doubt that is true nationwide.

Offices occupy about 18% of all commercial space in America, and use about 20% of the electricity. This is not a trivial footprint, nor one which shifts quickly. One model proposed by Regus, a provider of flexible workspaces, is a variant on the old “hotelling” model of a few years back. Businesses shrink the office footprint by enabling work-from-home, but then provide some necessary space for customer/client contact and some flex space options for shifting project demands. This is probably a great model for professional businesses (attorneys, CPAs, researchers) but may not be a one-size-fits-all for ever office occupant. Nonetheless, this may very well be an increasing solution, suggesting at least a “flat” demand for new office space for quite a few years to come.

Graphic courtesy REGUS

We’ve actually made some of these shifts at Greenfield, with the attendant problems and benefits. As always, if you have any questions or comments about this, please feel free to reach out.

John A. Kilpatrick, Ph.D., MAI — john@greenfieldadvisors.com

Written by johnkilpatrick

April 22, 2021 at 1:54 pm

Posted in Uncategorized

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