SHOULD YOU GO LONG ON NEW YORK CITY OFFICE SPACE? 

BY JONATHAN LUTTWAK

Let's look at history. The 1918 Spanish flu pandemic drove people out of New York City, but they returned to lead a decade of tremendous growth. Always the comeback king, New York also roared back to life after the 1975 fiscal crisis, the September 11th terrorist attacks and the 2008 financial meltdown. 

Following each crisis, the New York City became more vibrant and creative. The reemergence of art, culture, food, and entertainment beckoned people - and companies - to return. The density of New York creates an energy that is unmatched in the United States. It has a heartbeat, even if the pulse of the office towers is seemingly faint today. 

New York City is a global behemoth. Let's face it, no other American city, regardless of its growth, is likely to join the ranks of London, Paris, Rome, Hong Kong, Tokyo, Shanghai, Madrid, Berlin, Seoul, and Sydney the way New York City has. Like these other metropolises, it's here to stay. 

The naysayers are all screaming, "This time it's different!" Yes. Without question, the technology of the past decade is shifting the paradigm for worker productivity. More can be done remotely, and many companies are already thinking about saving money by shedding much of their physical footprints, especially in high-cost locations. 

Pfizer's early data shows its vaccine is more than 90% effective. Globally, eleven vaccines are in late-stage trials, including four in the United States. While we seem to be entering a new and scary chapter of the pandemic, with numbers rising worldwide, the vaccine represents a light at the end of the tunnel. Fittingly, the same technology we are all using to work remotely enabled great minds to coordinate a global effort and a real-time information exchange. 

While it is too early to cheer, it is more likely than not that some vaccines will be available to the general public by the spring of 2021. Indeed, it is very reasonable that by the summer of 2021, we start moving towards some semblance of normalcy. Will that mean crowded subways, theaters, restaurants, travel, and even shaking hands? In my view, yes. 

The election is a divisive issue. My focus is not political, but rather analyzing what a Biden victory means for New York City. While President Trump has not conceded the election, it is unlikely the outcome with change. Although a Biden administration's long-term tax implications may create challenges, a Biden win likely means favorable fiscal policies for New York. 

Money to support vital city services, combined with a return of cultural institutions, entertainment and dining, will pull young people back to the city. In fact, with outdoor dining likely to remain a permanent change to the city streets, New York City will revert to a magnet for a young, energetic, creative, and educated talent pool that it was pre-COVID. By next year, if the vaccine is readily available globally, we could also see a significant influx of tourists. 

Cushman & Wakefield published a report about the future of the workplace and how employees are coping with working from home. While productivity remains high, the data also reveals vital differences between age groups. Baby boomers are the most content working remotely. However, while still productive, Millennials and Gen Z are struggling the most, with only 54% feeling a strong sense of well-being. Learning, culture, and real human connections are also suffering. 

While providing remote training is not a significant roadblock, it cannot replicate what can be learned by sitting a room and brainstorming a project with a team, or sharing information in person with co-workers. The mentorship gained by asking a supervisor, "Do you have a minute? I am stuck on something." These are the types of interactions that are very difficult to emulate virtually. 

There are pragmatic considerations too. Gen Z employees are less likely to have suitable work-from-home space, especially if they return to New York. Millennials also struggle with balancing tight spaces with parenting obligations. For younger employees, the workplace cultivates culture, promotes well-being, and builds trust. You can't get replicate culture on a Zoom call. In the long run, the value of culture and wellbeing exceeds the costs associated with great physical environments. 

So will 2023 look like 2019? Not exactly. In my view, the office market probably will not be that much different. For some time, companies have tried to provide greater employee flexibility. That trend, as well as increased technology within the workplace, and greater emphasis on distributed work, is not likely to diminish.

However, a growing body of evidence shows that a workplace is more than a place to work. It is a place to innovate, collaborate, promote personal connections, improve well-being, drive culture and cultivate talent. Admittedly, it is difficult to measure the cost of culture and skill while it's easy to quantify the cost of real estate. Undoubtedly, we will continue to see that reality push companies to reduce their real estate costs and shed space in the short term. 

However, in the long run, as the city recovers, it will once again offer an unmatched living and cultural experience. With a return to normalcy will come an influx of talent, and companies will once again utilize real estate as a tool to drive recruiting, retention, engagement and culture. 

New York's commercial office market will come back stronger than ever. It will take some time, but the recovery will probably be faster than most people expect today.