Office no more: Empty offices aren’t all coming back, but the space can still be a hub for innovation
As much as we’ve advocated for office-workers to return to their pre-COVID locations and breathe new life into neighborhoods battered by dwindled foot traffic, the city must face facts that remote work is here to stay. Commuters say they plan to cut down their time in the city permanently, by as much as half. Companies see the writing on the wall, and won’t force the issue out of fear of losing workers accustomed to the flexibility of working from home. We have several options, the worst of which is to let this space accumulate dust and forfeit tax revenue while wishing that trends would magically reverse. Or policymakers can make it easier for buildings to be repurposed into different types of space that will actually serve our social environment and economy.
The most obvious choice is conversions to residential usage, but it’s by no means the only approach. Retail, gallery, even high-tech manufacturing or vertical farming should all be on the table to help use the COVID crisis as an opportunity to transform Midtown and other office-heavy areas for the better. Let the market decide.For this to work properly, the city must revisit its onerous and restrictive zoning ordinances, which sometimes make conversion of office space impossible, or at other times merely make it a massive, costly and logistical headache. Paired with this should be long-overdue reforms of the city’s property tax code, which has long piled burdens on renters and other classes of property — including commercial tenants. One day, our kids might marvel that our hubs of innovation were once boring old office space.
Now it is rising again. Sublease availability across the U.S. increased 3.6% in the first quarter to 159 million square feet. That is still below last year’s peak of 162 million square feet, but well above pre-pandemic levels. All that space is hitting the market at a time when landlords are already grappling with low demand and a record amount of lease expirations, pushing rents down and vacancies up. The recent uptick in companies putting their space on the market is a delayed response to the Omicron outbreak of late 2021, which led more companies to settle on hybrid work and cut space. It also reflects uncertainty over the economy amid inflation. While sublease availability is low in some Sunbelt cities that are attracting more companies and jobs, it is near historic highs in New York, San Francisco and Washington, D.C.
In Manhattan alone, more than 20 million square feet of office space was available for sublease in the first quarter, according to professionals. That helped push overall office availability to the highest level in decades. Many of the listings are in the types of new, expensive buildings that have so far made it through the pandemic relatively unscathed. Many employees work remotely or only come in on some days, meaning the office is only about 20% occupied. By cutting space, the company is looking to lower its real-estate bill.
Well over two years into the COVID-19 pandemic, just 8% of Manhattan office workers have returned to work in-person five days a week, according to a new poll. The survey, published by the Partnership for New York City and conducted from mid-April to the beginning of May, found that 38% of Manhattan office workers are currently at their workplace on any given weekday. While the share of fully remote office employees dropped from 54% in late October 2021 to 28% as of late April, it appears a hybrid work model isn’t going away.
Nearly 80% of the more than 160 CEOs surveyed indicated that they would continue to embrace a hybrid work model, even after the pandemic comes to an end. It’s a stark shift from pre-pandemic times, when just 6% of those employers offered a hybrid work model. In-person office work in Manhattan, however, may see a boost after Labor Day. Business leaders polled said they expect to see 49% of workers return to the office on an average weekday in September 2022. Mayor Eric Adams has repeatedly encouraged employers to bring their workers back to the office, saying they’re crucial to the city’s economic recovery.
Efforts on both a citywide scale and on a company-to-company basis will draw commercial real estate forward. During Commercial Observer’s latest forum — “The State of CRE: A Forward-Looking Industry Outlook & Vision for Market Growth” — industry experts highlighted the importance of collective improvements, like political-development alignment, and more subjective adjustments, like modern office amenities, for spurring growth in New York City. Lamenting the solitude brought on by COVID-19, Fisher suggested that the theme of connection will drive the design, creation and use of future spaces.
In “Top Priorities for Executing the Mayor’s Economic Blueprint,” both men pointed to the ways in which Mayor Eric Adams has embraced the private sector, paving the way for market growth in places like the Brooklyn Navy Yard. Yet working in conjunction with the city is only one factor for success in commercial real estate. Scouting a diverse ecosystem of talent, as well as engaging with academic resources, will not only yield results, but also reflect the city’s population at large. Touching upon the longevity of physical office space, the panelists agreed that hybridity is the future, though there are strategies for landlords and employers to draw employees back long term.
Getting tenants inside the office—and keeping them there—requires the quick integration of modern amenities into the built environment. Such amenities may include collaboration space and curated dining facilities, as well as physical changes like improved air filtration and elevated natural lighting. Buildings that account for ESG standards and carbon neutral futures are also on tenant want-lists.
Guests at a new 20-story hotel and cultural center in Skellefteå, a former gold-mining community in northeastern Sweden, don’t have to step outside to feel immersed in the natural world. The floors, ceilings and support beams of the building—which also houses a museum and other facilities—are made almost entirely of spruce and pine harvested from nearby woodlands. The 323,000-square-foot complex is part of an emerging trend as architects, developers and builders turn to so-called mass timber, wood that is glued and pressed in special ways to make it similar in strength to concrete and steel and thus capable of replacing those building materials even for skyscrapers and other massive edifices.
Advocates of mass-timber construction maintain that it can be more environmentally friendly than conventional construction. The carbon footprint of a building constructed with sustainably harvested mass timber, which is made from trees that are selectively cut rather than clear-cut, can be half that of a similar building made of concrete and steel, according to an assessment of mass timber construction published recently in the journal Sustainability. The number of multistory mass-timber buildings being built in the U.S. rose 50% between July 2020 and December 2021 to more than 1,300 structures, according to the wood trade group WoodWorks.
Among the projects are an eight-story office building in Charlottesville, Va., a new Google five-story office building scheduled to open in August in Sunnyvale, Calif., and a 25-story residential-retail complex rising in Milwaukee. The International Building Code permits wooden buildings of up to 18 stories, but the developers of the Milwaukee project say they obtained a variance after submitting data to city officials showing it was as safe as a conventional building.