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.
By Matthew Haag
·
May 12,
2020Updated 2:59 p.m. ET
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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.”
In
a recent email to employees, JP Morgan Chase, which until last year had been
the largest office tenant in New York City, said the company was reviewing how
many people would be allowed to return. More than 180,000 Chase employees have
been working from home.
Other
major companies, including Facebook and Google, have extended work-from-home
policies through the end of the year, raising the prospect that some may never
return to the office. Twitter, which has hundreds of employees in its New York
office in the Chelsea neighborhood of Manhattan, told all its employees on
Tuesday that they could work remotely forever if they want to and if their
position allows for it.
Warren
Buffett, the chairman of Berkshire Hathaway and one of the country’s most
prominent corporate leaders, predicted that the pandemic would lead many
companies to embrace remote working arrangements. “A lot of people have learned
that they can work at home,” Mr. Buffett said recently during his annual
investors meeting.
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.
More
fundamentally, if social distancing remains a key to public health, how can
companies safely ask every worker to come back?
“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.”
Still,
workers do much more than fill cubicles.
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.
“I
get worried that the less money that is coming in, then we can pay less in
taxes and less in services, and it becomes a vicious cycle,” said Brian
Steinwurtzel, the co-chief executive at GFP Real Estate, the largest owner and
manager of small tenant office and retail buildings in the city.
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 that 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.
One
of his three commercial tenants, a makeup store, has not paid rent since
January. None of them, including two formerly busy restaurants, have paid May
rent. Mr. Lee has a roughly $250,000 property tax bill due on July 1 that he
cannot afford to pay.
“We
have lost millions of dollars,’’ he said, “and millions of trips that people
were taking to spend their lunch hour here.”
At
Aux Epices, a Malaysian and French bistro in Chinatown, Mei Cahu, the chef and
owner, used to serve up to 50 people at lunch, mostly workers from nearby
office buildings.
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,” Ms. Cahu said.
Landlords,
developers and business owners were hopeful just a few weeks ago that the
economy could largely reopen in June.
But
the reality, they now concede, is that late summer or early fall seems more
realistic for a partial reopening, while a true reopening — something that
might resemble a bustling New York — will not surface until there is a vaccine
or effective therapeutics.
Still,
some developers are dubious that the sudden shift in work environments will
become permanent in any significant way.
Anthony
E. Malkin, the chief executive of Empire State Realty Trust, the owner of the
Empire State Building and eight other properties in Manhattan, said New York’s
appeal — a diverse and educated work force and large industries, including a
fast-growing technology sector — would drive an economic rebound and a desire
for office space.
“The
absence of social contact through which people are living today is not
sustainable,” Mr. Malkin said. “Can you pay the bills from home? Can you
process things from home? Yes. But can you work as a team from home? Very
challenging.”
Mary
Ann Tighe, the chief executive of CBRE’s New York Tri-State Region, the
commercial real estate firm, said offices will 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.
Small
Planet, a small software developer in Brooklyn, said about half its work force
is likely to continue working remotely even after the city reopens.
“The
world is going to be different when we come out of quarantine, and our habits
and how we use office space will absolutely be different,” said Gavin Fraser,
the company’s chief executive. “It really took the lockdown, if you will, to
accelerate those trends.”
Matthew Haag covers the intersection of real
estate and politics in the New York region. He previously was a general
assignment and breaking news reporter at The Times and worked as an education
reporter at The Dallas Morning News. @matthewhaag
