Dispatch from New York City
Guest Post By George E. Grace, President, G.E. Grace & Company, Inc.
The big question for all of us individually and collectively (i.e. companies and organization) in New York City is when will we be back working in “the office?” I’m talking about the office that is not 10’ (or less) from your bedroom.
One of the very good trackers on the level of how many of us are going back to the office is Kastle Systems’ Back to Work Barometer. You can find that at https://www.kastle.com/safety-wellness/getting-america-back-to-work/. In New York, we have reached 37.4% of potential individual swipes on entry security registers—people entering a building—and reporting to the office. These systems are mostly in Class A buildings. For me as a commercial real estate broker, that is a paltry statistic. For politicians who are looking to revive the economy, it is a flashing warning sign.
The return to office is grinding slowly higher with occasional setbacks and accelerations. According to Kastle Systems over the last two years swipes have gone from a low of 14.6% to a high of 38% of the average pre-COVID baseline. If we did a straight-line projection of those statistics, we would be at full occupancy sometime in mid-2028!
The consensus is not to expect such a prolonged period back to full occupancy. The real concern is that occupancy levels will not reach the pre-pandemic level for many, many years, if not decades to come. The reason for this concern is not only the pandemic, but demographics, political mismanagement, and technology.
Technology has made it much easier to communicate face-to-face using Zoom, Microsoft Meetings, etc. This has facilitated business and made it much more efficient in many ways. I don’t have to travel to meet a prospective client, I can meet via the web. While not perfect and less personal, it is sufficient in many instances.
Another reason for the slow return to pre-pandemic occupancy levels is that baby boomers are reaching retirement age, and many are accelerating the decision to retire. This reduces the number of workers and the demand for office space. Many older workers find the commute for an hour or two each way unnecessary if you can work from your home. Anecdotally, I miss the camaraderie, but I am way more productive at home. Millennials, which make up the largest population cohort, see the advantage of working from home as well. If this group decides that the office is optional, then the office space industry is in for some major problems. Most of the millennials have not yet hit their highest earning years—there is a lull in the population between baby boomers (1946 to 1964) and millennials (1981 to 1996)—part of the anemic office demand may just be this interim between these two large population groups.
The pandemic obviously created fear of going to the office, but politicians from all spectrums, have added to the fear through confusing, nonscientific political decision making. Politicians’ poor handling of crime and the subsequent perception that crime is uncontrolled has added a level of insecurity and fear for the office worker resulting in a further desire to avoid what is perceived to be dangerous commute and instead work from home.
The result, so far, is a vacancy rate that went from 9.1%, in the first quarter of 2020, according to Costar, to a rate over 13% which represents in New York City an 8,000,000 square foot increase in inventory.
The conclusion that can be drawn from this information is that the nature of office work and where it is accomplished is changing dramatically. The pace of that change is accelerating. It seems clear that a flexible, adaptive approach to office development and leasing will be required to meet the challenges in the office market going forward.
George Grace has been an OfficeFinder member serving the needs of businesses looking for office space in New York City for over 20 years. His team creates options for their clients so they can maximize their leverage over landlords which allows their clients to get the best possible deal in the right location.