April 2021
First Quarter Market Update
The New York City office market remains weak as the supply of both direct and sublet space has increased substantially and most workers remain at home. The amount of available space on a direct basis has increased by more than 30% the first quarter of 2021 over the last year, and currently stands at an all-time high. Additionally, the amount of sublet space has increased by 50%. Leasing activity remains at similar levels to the second half of last year. Moreover, physical office occupancy levels in New York City are below 14% based on keycard data.
Returning to Work and the Hybrid Office Plan
Return to work plans are of utmost importance to employers as the vaccination rollout progresses and the economy opens in New York. Armano Real Estate expects most of the workforce to return after the Labor Day holiday and a nearly complete return by the beginning of 2022.
Armano Real Estate estimates that 60% of the workforce will be choosing a hybrid work option consisting of working in the office and at home. Developing a hybrid work plan will therefore be critical for companies as they flex to the new workplace dynamics.
Office space occupiers will need to develop new design and seating plans, rethink their scheduling approaches and implement new management strategies to prevent employees working virtually from feeling isolated.
Possible seating options include the following:
Same Desking – The employee has their own desk. This is also known as assigned seating and was the prevalent seating plan prior to COVID-19. Armano expects most employees will continue with this plan or may choose a combination of assigned seating with flexible and collaborative plans.
Desk Sharing – The employee does not have a permanently assigned desk. This is also known as hoteling, flexing or desk swapping. This model was used moderately prior to COVID-19. Armano expects increases in this type of seating plan as more of the workplace adopts a hybrid model.
No Desking – The employee does not have a desk. Employees used collaborative workspace and meeting areas in the office. No desk offices were rare prior to COVID-19. However, Armano also expects increases in this type of plan as workers spend less time in the office.
The Return of the Roaring 20’s in NYC
The Spanish Flu ended in April 1920. There are a host of parallels between current global conditions and those over 100 years ago. Similarities of the 1920’s and the 2020’s include the end of a pandemic, the proliferation of new technologies, a transportation revolution, political polarization and a soaring stock market.
While we cannot predict how loud the 2020’s will roar, it is fair to say that demand for many goods and services, such as restaurant food services are pent up, and a healthy rebound is very likely. The IMF projects Unites States GDP growth at 6.4% in 2021 and 3.5% in 2022. The NYC Independent Budget Office projects New York City GDP growth of 3.9% in 2021 and 3.3% in 2022.
New York City lost 557,000 jobs in 2020. It is projected 152,000 jobs will be added in 2021, 149,000 in 2022, 107,000 in 2023 and 53,000 in 2024 and 2025. Thus, it is expected it may take over 4 years to recover all the jobs lost due to COVID-19.
However, these statistics do not take into account changes in business and consumer spending and activity. We believe that when business owners and managers return to the office they will invest heavily in their businesses and will spend more readily on services they had done without for over a year. Thus, we envision a scenario where a full return of the workforce, increased hiring and greater than expected business spending and activity leads to positive absorption of space and increases in rents in 2022 and beyond.
While we expect a robust economic recovery, the office market recovery may be more tapered. We expect a 10-15% or more decrease in structural demand for office space resulting from the continuity of work from home trends. However, we believe there will be a significant recovery and demand for space will remain healthy.
We do not see an environment where employees work from home 100% of the time. As previously discussed, we believe that there will be a return to the office most often in a hybrid model. Many companies will opt to keep same desking which will help stabilize space demand. Companies that opt for desk sharing or no desking, will need to offer more collaborative and meeting space which will offset part of the space demand decrease from sharing or eliminating desks. Finally, we expect occupiers to adopt space plans with more distance between employees as less dense offices are perceived as safer in a post-Covid world.
Thus, we believe that New York City and the office market will roar again. We expect that 2022 will likely be a banner year in the office market. And we encourage tenants to proactively use this window of opportunity to engage the market and explore options to best reposition their corporate real estate.
Please feel free to contact us regarding your current real estate situation. We can provide a no-fee lease review and a preliminary space program to help meet your back to work plan and corporate real estate vision.
Please see the below link for recent news announcements and our newsletters:
In the News and Newsletter
Please see the below links for NYS Guidelines:
eopening New York
Please see the below links for NYC recovery index:
NYC Economic Recovery Index
Please see the below links for NYC COVID results:
Positive COVID-19 Results by Region
Please see the following link regarding HealthCheck360 COVID-19 Workplace Solutions:
HealthCheck360 COVID-19 Workplace Solutions
