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Paramount Group said leasing activity this year could fall below 2020's level and forecast an up to 15% decline in cash flow as the Midtown office-tower owner braces for New Yorkers to continue working from home. “We think that most probably we’ll have more signed, inked leases in the second half,” Chief Executive Albert Behler said Thursday on a conference call. “But it’s hard to summarize and predict.” Paramount forecast “core” funds from operations would come in this year between 82 and 88 cents a share, down from 96 cents in 2020. Funds from operations are a nontraditional financial metric used in real estate as a proxy for cash flow. In addition, the firm expects to lease between 600,000 and 900,000 square feet of space this year. That compares to 2020's figure of about 700,000 square feet, which represented a 50% drop from 2019.
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There’s been a lot of ink spilled over how the coronavirus pandemic spells the end for the traditional office. With Manhattan office occupancy hovering around 11 percent, some speculate that work as we know it is gone forever. People seem to like the flexibility of working from home over a daily commute and a desk. Are they going to feel that way forever? Working from home has plenty of benefits. Cutting out commutes opens more time for family, sleep, or mid-morning trips to the grocery store. There is something to be said for flexibility when technology allows it. Some people are more productive outside the typical 9-to-5 work structure. Some find long, midday walks get their creative juices flowing. But flexibility cuts both ways. Studies show that office workers toiling from home during the pandemic are more likely to put in more work hours, not fewer. There is no “quitting time,” train to catch, or an emptying office to signal the end of the workday. People are more likely to send or answer emails at all hours, even on weekends. In the long run, this is wearing. A recent Gallup survey found that fully remote workers are now experiencing more burnout than those on site, with 29 percent of employees who work fully remotely saying they felt burned out at work “very often” or “always.”
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Foreign property investors, long drawn to Manhattan skyscrapers, coastal resorts or urban shopping corridors, are increasingly directing their attention to suburban warehouses. The changing attitudes are the latest sign of how the Covid-19 pandemic is shaking up the U.S. real-estate market, leading both domestic and overseas investors to rethink their priorities. Foreign buyers “see that type of investment as effectively a corporate bond given by one of the largest companies in the world,” said Matthew Alshouse, a partner at law firm DLA Piper.
International law firm Cozen O’Connor has made good on its deal to take more than 77,000 square feet across the 55th and 56th floors of Silverstein Properties’ 3 World Trade Center. The firm has moved into its new digs, which combines its two New York offices previously at 45 Broadway and 277 Park Ave., to make room for growth. Cozen O’Connor will spend at least 15 years at the downtown trophy building, which includes tenants Uber, Diageo, Casper, IEX and anchor tenant GroupM. The firm signed a lease for the space back in December 2019, a mere three months before the pandemic put the city under lockdown and purged iconic office buildings of their tenants. While companies in the city are looking at giving up space and breaking their leases, Cozen O’Connor is staying.
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The pandemic is compelling a number of co-working firms to discard original business models, or accelerate the adoption of a new one, with the broader office market under threat. The original strategy, popularized by WeWork and many of its peers, involved leasing as much office space in city centers as possible, and then effectively subletting it to companies for a profit. This approach led to spectacular growth and sent WeWork’s valuation soaring to $47 billion. With the majority of office employees still working from home during Covid-19, demand has plummeted. But co-working firms remain on the hook for the expensive long-term leases they signed during the boom years, and many are struggling to meet these obligations. Knotel Inc. became the industry’s biggest victim yet of this mismatch when it filed for Chapter-11 bankruptcy last month.
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