It’s been a year since Manhattan landlords first pinned their hopes on Labor Day as the end of the remote-work era, and the city’s office buildings haven’t gotten much busier.
But Silverstein Properties CEO Marty Burger says he’s confident more workers will finally return to their desks in the coming months.
“We’re experiencing people coming back,” Burger said on CNBC’s “Squawk on the Street” Monday. “I think after Labor Day, you’re gonna see an increase in people coming back to the office, and I think by the end of the year, you’ll have some new normalcy in what happens in the office market.”
Asked by host David Faber what that “new normalcy” will be, Burger acknowledged that few tenants will be back five days a week.
“I think Tuesday through Thursday, you’re going to see maybe 70-80 percent office occupancy,” Burger said. “It’s interesting because if you ask someone if they want to work remotely, they’ll say yes. If you ask them if they want to give up their office space, they’ll say no.”
Silverstein, one of the city’s largest office landlords, has some decent evidence that its properties are still in demand: Last week, it signed the law firm Freshfields Bruckhaus Deringer to a 15-year lease on 180,000 square feet at 3 World Trade Center, where the asking rent was believed to be upwards of $100 per square foot.
Earlier last month, it signed the city’s Housing Development Corporation to 109,000 square feet at nearby 120 Broadway, the century old office tower it recently spent $50 million restoring with amenities like a fitness center and 10th-floor speakeasy.
But that deal came just a few weeks after the law firm Kaufman Borgeest & Ryan ditched its 48,000 square feet in the building for a smaller space at Eyal Ofer’s 875 Third Avenue in Midtown.
Manhattan’s office market appears to be gaining momentum. Tenants signed leases for nearly 3.2 million square feet in July, according to data from Colliers, the most in any month since the start of the pandemic. Available space in Midtown fell for the fifth straight month.
Still, there’s a long way to go. The vacancy rate in July stood at 17 percent, little improved from February’s record 17.4 percent. And while leasing is ticking up, occupancy is not. The city’s office buildings were 35.3 percent occupied in the week ending Aug. 24, according to Kastle Systems, which tracks card-swipe data. The occupancy rate hasn’t gotten above 43 percent since the onset of the pandemic, but decisions by Goldman Sachs and Morgan Stanley to relax Covid policies after Labor Day could prompt other employers to get workers back to the office more often.
Burger didn’t directly respond when asked whether the plan to build millions of square feet of additional offices in several towers surrounding Penn Station makes sense, but suggested there will always be a need for new space.
“You’ve got great talent in New York City,” he said. “That’s where people want to be, so you have companies coming here to tap into that talent and they’re going to continue to do so.”
Burger also pushed back on the notion, reported by the Wall Street Journal last week, that a Reagan-era tax code change spurred today’s office space glut.
“I really don’t think there’s an office glut,” he said. “I think office evolves over time and becomes different things.”
He pointed to Silverstein and Metro Loft Management’s plans to convert the 30-story office building at 55 Broad Street, which the firms bought in May for about $180 million, into a 571-unit apartment building.
“If you look at New York City, it’s got a very old stock of office buildings and it’ll be reused as different things over time,” Burger said. “I think there will be a lot of [redevelopment], but not a ton of it, because not every building can be repurposed like that.”
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