Even if remote work is here to stay, Manhattan office space will always be among the most valuable in the world — here's why

© Provided by Business Insider   Nearly empty streets in downtown Manhattan, New York during the outbreak of the coronavirus on May 5, 2020. Reuters

By Eric Kober, Business Insider

  • Eric Kober is an adjunct fellow at the Manhattan Institute, and the former director of housing, economic, and infrastructure planning at the New York City Department of City Planning.
  • Amid the COVID-19 outbreak in New York, nonessential companies have locked up their Manhattan offices to work from home, and some New Yorkers have left the city entirely.
  • Despite this momentary exodus, Kober explains that Manhattan office space will not lose its value.
  • He explains that Manhattan's labor pool and unparalleled transit and commuter networks will always be a draw for flagship businesses and company headquarters.

As New York City's economy reels from the effects of COVID-19, many wonder if  the city may never recover. Hundreds of millions of square feet of Manhattan office space sit vacant, awaiting the return of workers who might decide they prefer working at home, at least part of the time. Businesses may conclude that remote work is more feasible than they once thought, and cut back on the amount of office space they rent.

© Eric Kober   Eric Kober. Eric Kober

This isn't actually a new trend. For years, businesses have been seeking to use their Manhattan office space more efficiently, converting to open office layouts and cutting down on private offices. Ultimately, this is good for the city's economy. If businesses lower their costs, they can pass some of those savings on to customers, increasing revenues and profits simultaneously, which in turn means more jobs and more new businesses. Over time, more people will be working in the same amount of office space.

There are plenty of  reasons to work from home: Not commuting adds hours to the day and makes childcare more manageable, and true telecommuters can live in low-cost areas where housing is cheapest. However, workers also have reasons to be at the office: to access other employees' expertise, exchange ideas, and develop closer professional contacts. And companies may feel some employees are better trained and supervised at the workplace. These factors will make many businesses reluctant to give up a physical workspace.

This need supports the assumption that Manhattan office employment will be higher when the economy has fully recovered. Real estate investors' confidence, in turn, drives investment in new buildings, as well as constant upgrades to existing space. After each of the two earlier recessions of the last 20 years, Manhattan office usage and rents have recovered quickly. Going back to 2001, Bureau of Economic Analysis data show that in five key sectors that represent most of Manhattan's office workers, employment grew from 1.06 million to 1.36 million in 2018, or about 28%.

Of course, as any Wall Street broker will tell you, past performance is no guarantee of future returns, but Manhattan still has fundamental advantages that can't be easily duplicated. Using the broadest definition of the New York metropolitan area, which includes commuters from as far away as Pennsylvania, the area's labor force totaled 12.34 million in 2018. The sheer size of this labor pool — almost 40% of which have a college degree or higher — draws employers to Manhattan. You couldn't simply pick up and move this office core somewhere else: Office space is a fixed investment, and no other city has a comparable transit and commuter network.

In the long run, as the national economy recovers and grows, Manhattan will still be unique. It will still be valued as a center of advanced business services, and will likely employ more workers than ever in its flagship office-based sectors. What everyone wants to know — even optimists like myself — is when the current crisis will be over and we can get back to seeing New York as one of the most promising cities in the world.

Thus far, office-based industries have not been hit as hard by the pandemic as others, because many workers can work at home. According to the New York State Department of Labor, while private employment across New York City plummeted by 21.8% from April 2019 to April 2020, employment in key office-based sectors declined far less. Most of these companies, despite lower revenues, will still be in a position to return to the workplace as soon as they safely can.

To return to their offices, workers must first be convinced that riding mass transit is safe and that they'll be protected from infection at the office. The post-pandemic workspace will likely be more flexible but more regulated: Hours of arrival will be staggered to reduce crowding at peak commuting times, workstations may be shared but farther apart, and chats by the coffee machine will be discouraged. Working out all this may take months and will be dependent on overall public health conditions. But unless conditions take years to stabilize — an unlikely worst-case scenario — we can expect the historical pattern to repeat itself. Manhattan will once again have a new chance to generate wealth and opportunity for its business owners, real estate investors, and upwardly mobile workers.

See more at: Business Insider

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