Manhattan Faces a Reckoning if Working From Home Becomes the Norm

Even after the crisis eases, companies may let workers stay home. That would affect an entire ecosystem, from transit to restaurants to shops. Not to mention the tax base.

Before the coronavirus crisis, three of New York City’s largest commercial tenants — Barclays, JP Morgan Chase and Morgan Stanley — had tens of thousands of workers in towers across Manhattan. Now, as the city wrestles with when and how to reopen, executives at all three firms have decided that it is highly unlikely that all their workers will ever return to those buildings.

The research firm Nielsen has arrived at a similar conclusion. Even after the crisis has passed, its 3,000 workers in the city will no longer need to be in the office full-time and can instead work from home most of the week.

The real estate company Halstead has 32 branches across the city and region. But its chief executive, who now conducts business over video calls, is mulling reducing its footprint.

Manhattan has the largest business district in the country, and its office towers have long been a symbol of the city’s global dominance. With hundreds of thousands of office workers, the commercial tenants have given rise to a vast ecosystem, from public transit to restaurants to shops. They have also funneled huge amounts of taxes into state and city coffers.

But now, as the pandemic eases its grip, companies are considering not just how to safely bring back employees, but whether all of them need to come back at all. They were forced by the crisis to figure out how to function productively with workers operating from home — and realized unexpectedly that it was not all bad.

If that’s the case, they are now wondering whether it’s worth continuing to spend as much money on Manhattan’s exorbitant commercial rents. They are also mindful that public health considerations might make the packed workplaces of the recent past less viable.

“Is it really necessary?” said Diane M. Ramirez, the chief executive of Halstead, which has more than a thousand agents in the New York region. “I’m thinking long and hard about it. Looking forward, are people going to want to crowd into offices?’’

Of course, the demise of the Manhattan office market has been predicted for decades, especially after the Sept. 11, 2001, attacks.

Owners of office towers, including two of the largest landlords in the city, Vornado Realty Trust and Empire State Realty Trust, said they were confident that after this crisis, companies would value in-person communication more than ever. That’s especially the case given how isolated some workers have felt since the shutdown began in March, the landlords said.

The number of workers who actually prefer to be in an office because of the opportunity for social interaction is an unknown factor.

Still, when the dust settles, New York City could face a real estate reckoning.

David Kenny, the chief executive at Nielsen, said the company plans to convert its New York offices to team meeting spaces where workers gather maybe once or twice a week.

“If you are coming and working at your desk, you certainly could do that from home,” Mr. Kenny said. “We have leases that are coming due, and it’s absolutely driving those kinds of decisions.’’

“I have done an about-face on this,” he added.

Barclays, JP Morgan Chase and Morgan Stanley are part of a banking industry that has long been a pillar of the city’s economy, with more than 20,000 employees. Collectively, they lease more than 10 million square feet in New York — roughly all the office space in downtown Nashville.

Jes Staley, the chief executive of Barclays, the British bank, said that “the notion of putting 7,000 people in a building may be a thing of the past.”

The company is studying jobs that would be most adaptable to working remotely, a spokesman said, and some employees could be required to show up in person only on an as-needed basis.

James Gorman, the Morgan Stanley chief executive, declined a request for an interview. But he told Bloomberg that the company had “proven we can operate with no footprint. That tells you an enormous amount about where people need to be physically.”

New York City has withstood and emerged stronger from a number of catastrophes and setbacks — the 1918 Spanish Flu, the Great Depression, the 1970s financial crisis and the 2001 terrorist attacks. Each time, people proclaimed the city would forever change — after 9/11, who would want to work or live in Lower Manhattan? — but each time the prognostications fizzled.

But this moment feels substantially different, according to some corporate executives.

The economy is in a sustained nosedive, with unemployment reaching levels not seen since the Great Depression. Many companies are in financial trouble and may look to shrink their real estate as a way to cut expenses.

“If you got two and a half million people in Brooklyn, why is it rational or efficient for all those people to schlep into Manhattan and work every day?” said Jed Walentas, who runs the real estate company Two Trees Management. “That’s how we used to do it yesterday. It’s not rational now.”

Entire economies were molded around the vast flow of people to and from offices, from the rush-hour schedules of subways, buses and commuter rails to the construction of new buildings to the survival of corner bodegas. Restaurants, bars, grocery stores and shops depend on workers for their survival.

Real estate taxes provide about a third of New York’s revenue, helping pay for basic services like the police, trash pickup and street repairs. Falling tax revenue would worsen the city’s financial crisis and hinder its recovery.

Chinatown in Manhattan typifies the bond between office workers and surrounding neighborhoods. While Chinatown attracts tourists, many restaurants and stores rely just as much if not more on workers who typically pour in every day from the Financial District and nearby courthouses and municipal buildings.

“It is not dramatic to say that we don’t know if Chinatown is going to be here when we come out of this,” said Jan Lee, 54, who owns two mixed-use buildings in the neighborhood, including one that his grandfather bought in 1924.

“We have lost millions of dollars,” he said, “and millions of trips that people were taking to spend their lunch hour here.”

On Friday, she reopened the restaurant for takeout lunch. No one showed up.

“I have had a hard time, and I know I’ll have a hard time,” she said.

Landlords, developers and business owners were hopeful just a few weeks ago that the economy could largely reopen in June.

Mary Ann Tighe, the chief executive of CBRE’s New York Tri-State Region, the commercial real estate firm, said offices would undoubtedly change, with a mix of employees working remotely. But workers will still want to interact face to face.

“This isn’t the nature of office work,” Ms. Tighe said, referring to work-from-home arrangements.

Steven Roth, chairman of Vornado Realty Trust, one of the largest commercial landlords in the city, said on a company earnings call this month: “We do not believe working from home will become a trend that will impair office demand and property values. The socialization and collaboration of the traditional office is the winning ticket.”

But driven by safety or financial considerations — or both — many companies, big and small, are rethinking the future of work.

 

.

READ MORE

To prevent spam...
Jack and Jill went up the...

Find hidden opportunities - save money - avoid mistakes.
Website Design