Manhattan Faces a Reckoning if Working From Home Becomes the Norm

Before the coronavirus crisis, three of New York City's biggest commercial tenants – Barclays, JP Morgan Chase and Morgan Stanley – had tens of thousands of tower workers in Manhattan. Now, as the city struggles with when and how to reopen, executives at the three companies have decided that it is highly unlikely that all of their employees will return to these buildings.

Research firm Nielsen came to a similar conclusion. Even after the crisis has passed, its 3,000 workers in the city no longer have to stay in the office full time and can work from home most of the week.

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The Halstead real estate company has 32 branches across the city and region. But its chief executive, who now conducts business through video calls, is meditating, reducing his presence.

Manhattan has the largest commercial 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, commercial tenants have spawned a vast ecosystem, from public transport to restaurants and shops. They also channeled huge amounts of taxes into state and municipal coffers.

But now, as the pandemic loosens its grip, companies are considering not only how to recover employees safely, but also whether they all need to return. They were forced by the crisis to discover how to function productively with workers who operated at home – and unexpectedly realized that it wasn't all bad.

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If so, they are now wondering whether it is worth continuing to spend so much money on Manhattan's exorbitant commercial rents. They are also aware that public health considerations can make crowded workplaces of the recent past less viable.

"Is it really necessary?" said Diane M. Ramirez, executive director of Halstead, which has more than 1,000 agents in the New York area. "I'm thinking about it a lot. In the future, will people want to enter the offices? & # 39; & # 39;

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Obviously, the end of the Manhattan office market has been predicted for decades, especially after the September 11, 2001 attacks.

Commercial tower owners, including two of the city's largest landowners, the Vornado Realty Trust and the Empire State Realty Trust, said they were confident that after this crisis, companies would value communication personally more than ever. This is especially the case, given the isolation of some workers since the strike began in March, the owners 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 may face a real estate reckoning.

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David Kenny, chief executive of Nielsen, said the company plans to convert its New York offices into team meeting spaces, where workers meet perhaps once or twice a week.

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"If you're coming and working at your desk, you could certainly do that at home," said Kenny. "We have contracts that are expiring and this is absolutely driving this type of decision."

"I made a change in that," he added.

Barclays, JP Morgan Chase and Morgan Stanley are part of a banking sector that has been a pillar of the city's economy, with more than 20,000 employees. Collectively, they rent more than 10 million square meters in New York – virtually all of the office space in downtown Nashville.

Jes Staley, CEO of Barclays, the British bank, said that "the notion of putting 7,000 people in a building can be a thing of the past".

The company is looking at jobs that would be more adaptable to working remotely, a spokesman said, and some employees may be asked to appear in person only when necessary.

James Gorman, chief executive of Morgan Stanley, declined the interview request. But he told Bloomberg that the company “proved that we can operate without any footprints. This indicates an enormous amount of where people need to be physically. "

In a recent email to employees, JP Morgan Chase, who until last year was New York City's largest office tenant, said the company was looking at how many people would be allowed to return. More than 180,000 Chase employees are working from home.

Other large companies, such as Facebook and Google, extended work at home policies until the end of the year, increasing the prospect that some will never return to the office. Twitter, which has hundreds of employees in its New York office in Manhattan's Chelsea neighborhood, told all your employees on Tuesday, they could work remotely forever, if they wanted to and if their position allowed.

Warren Buffett, president of Berkshire Hathaway and one of the country's most prominent business leaders, predicted that the pandemic would lead many companies to adopt remote working arrangements. "Many people have learned that they can work from home," said Buffett recently during his annual investor meeting.

New York City resisted and emerged stronger from various catastrophes and setbacks – the Spanish flu of 1918, the great depression, the financial crisis of the 1970s and the terrorist attacks of 2001. Each time, people proclaimed that the city would change forever – after 9/11, who would want to work or live in Lower Manhattan? – but each time the predictions failed.

But that moment looks substantially different, according to some corporate executives.

The economy is in free fall, with unemployment reaching levels never seen since the Great Depression. Many companies are in financial trouble and may try to shrink their properties as a way to cut expenses.

More fundamentally, if social distance remains the key to public health, how can companies safely ask all workers to return?

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

Still, workers do much more than fill cubicles.

Entire economies have been shaped around the vast flow of people to and from offices, from subway, bus and rush hour schedules to the construction of new buildings and the survival of street corners. Restaurants, bars, grocery stores and stores depend on workers for their survival.

Real estate taxes provide about a third of New York's revenue, helping to pay for basic services like police, garbage collection and street repairs. The fall in tax revenue would worsen the city's financial crisis and hinder its recovery.

"I am concerned that the less money we get, we will be able to pay less taxes and less services, and it will become a vicious cycle," said Brian Steinwurtzel, co-chief executive of GFP Real Estate, the largest owner. and manager of small offices and retail buildings in the city.

Manhattan's Chinatown typifies the bond between office workers and neighboring neighborhoods. Although Chinatown attracts tourists, many restaurants and shops depend as much, if not more, on workers who normally arrive daily from the Financial District and from nearby courts and municipal buildings.

"It's not dramatic to say that we don't know if Chinatown will be here when we get 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 its three commercial tenants, a makeup store, has not paid rent since January. None, including two previously occupied restaurants, paid rent in May. Lee has an invoice of about $ 250,000 in taxes due on July 1, which he cannot pay.

"We lost millions of dollars," he said, "and millions of trips that people were taking to spend lunch time here."

At Aux Epices, a Malaysian and French bistro in Chinatown, Mei Chau, chef and owner, used to serve up to 50 people for lunch, mostly workers from nearby commercial buildings.

On Friday, she reopened the restaurant for lunch. Nobody came.

"I had a hard time and I know I will have a hard time," she said.

Homeowners, developers and entrepreneurs hoped only a few weeks ago that the economy could reopen in June.

But the reality, they now admit, is that late summer or early autumn seems more realistic for a partial reopening, while a real reopening – something that might resemble a bustling New York – will not emerge until there is a vaccine or effective therapy.

Still, some developers doubt that the sudden change in work environments will become permanently significant.

Anthony E. Malkin, executive director of the Empire State Realty Trust, owner of the Empire State Building and eight other properties in Manhattan, said the appeal of New York – a diverse and educated workforce and large industries, including a fast-moving technology sector growth – would generate an economic recovery and a desire for office space.

"The lack of social contact through which people are living today is not sustainable," said Malkin. “Can you pay your house bills? Can you process things at home? Yes. But can you work as a team at home? Very challenging. "

Mary Ann Tighe, executive director for the New York tri-state region of CBRE, a commercial real estate company, said the offices would certainly change, with a mix of employees working remotely. But workers will still want to interact face to face.

"That is not the nature of office work," said Tighe, referring to home work arrangements.

Steven Roth, president of the Vornado Realty Trust, one of the city's largest commercial owners, said in a company earnings call this month: “We don't believe that working at home becomes a trend that will hurt office demand and property values. The socialization and collaboration of the traditional office is the winning ticket. "

But, motivated by financial or security considerations – or both – many companies, large and small, are rethinking the future of work.

Small Planet, a small software developer in Brooklyn, said about half of its workforce must continue to work remotely, even after the city reopens.

"The world will be different when we come out of quarantine, and our habits and how we use office space will be absolutely different," said Gavin Fraser, the company's executive director. "It was really necessary to block, if you want, to accelerate these trends."

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