Editor's note: A 'new normal' for offices

Aug.August 17, 2020 12:00 PM

Stuart Elliott

Remember when August was the time of year when the news cycle slowed, there weren’t that many big stories, people were on vacation, and there was the expectation that life would return to its regular rhythm in the fall?

Like everything else this year, you can throw those rules out the window.

Because we have been living inside the pandemic bubble for nearly half a year now, there are days where it’s easy to lose sight of the extent to which it has upended the routine of our lives — at home, work, school and social gatherings.

Our cover package this month looks at the ever-evolving office market, where nothing is certain.

As reporter Akiko Matsuda writes in a story on the latest market impacts, as the country’s “great work-from-home experiment continues, the debate over the future of office leasing in New York and other major cities is far from over.” There are still no clear answers on the long-term impacts of the pandemic, and that comes on top of the U.S. economy’s record decline in the second quarter.

There was surprising positive news this month, though, when Facebook inked a massive 700,000 square foot lease deal at Manhattan’s landmark Farley Post Office building. And private equity behemoth Blackstone is looking for up to 1 million square feet for a new Manhattan headquarters, sources told The Real Deal at the end of July.

So what will the future hold? Craig Leibowitz of JLL said the office market is in the early stages of a “new normal” that involves a “very complex calculus, everything from the justification to working from home, employee training, productivity, quality of life, culture and a number of other variables.”

Not surprisingly, most companies are in pause mode right now.

A survey of major NYC employers found that only 8 percent of their employees had returned to their workplaces as of this month. At the same time, any office tenant that isn’t going fully remote could need more space for employees to remain six feet apart.

The ultimate irony would be if nothing changes at all in terms of how much space companies need.

Elsewhere in the issue, we have a profile of activist investor Jonathan Litt, who has become a prime foil for heads of some of the biggest REITs. Litt and his hedge fund Land & Buildings have been shorting New York City office stocks, including Empire State Realty Trust. In a six-page whitepaper, Litt warned of an “existential storm” making its way to the market and said Empire State’s Tony Malkin would “bear the full brunt” of it.

But at least there may be more hope alive in the office sector than retail, where the bad news predated the pandemic.

When Neiman Marcus signed a lease for its flagship space in the new Hudson Yards’ mall on Manhattan’s Far West Side, the luxury department store committed to an ambitious 50 years there. It only lasted 16 months. Check out the story on how things went downhill

Meanwhile, retail’s loss has been some of the industrial sector’s gain. Amazon has been gobbling up space and is now reportedly in negotiations with Simon Property Group, the country’s largest mall operator, to place distribution centers in locations that previously housed now-bankrupt anchor tenants. Since the pandemic hit, Amazon has leased around 11 million square feet of distribution centers — and that’s just in the Chicago area alone.

There are a few other bright spots too. Florida has seen some impressive activity at the top end of the residential market. We take a look at the latest trades on Miami Beach’s celebrity-filled Star Island.

Finally, much about the fate of this country — and the future of the real estate market — could be determined in the November presidential election. As Trump and Biden begin to face off in earnest, we examine what their plans (or lack of plans) could mean for the next four years.

Enjoy the issue.

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