Hopeful Signs Emerge Within the Office Sector
Even as pandemic fears subside, commercial real estate markets remain upended. But after years of idling, the seemingly endless supply of vacant offices that have come to define the pandemic era are beginning to show sparks of life in urban and suburban areas across the U.S.
During those idle years, sweeping trends emerged such as shifts by builders to newly emerging markets, elevated suburban housing prices, and the like. And in individual areas, recent examples from urban and suburban markets show how the tides may be finally turning for commercial property owners.
Is it time to shirk off the habit of saying that commercial offices within downtowns are “dead”?
If recent activity in New York City is any indication … maybe.
Recently, the Partnership for New York City, a collective of nearly 300 CEOs from the top corporate and investment firms, announced that New York City hit a pandemic-era milestone – offices hit a record 53 to 55 percent occupancy on an average weekday, the highest since office activity plunged during COVID lock-downs.
The group’s findings match those of Kastle Systems, a security firm in commercial spaces who during the pandemic created a Back-to-Work Barometer based on access activity data from their app, keycard, and fob usage in 2,600 buildings and 41,000 businesses across 47 states.
Based on both sets of findings, the NY Post’s Steve Cuozzo seems convinced that while the metropolitan area is once again showing signs of life, traditional 9-to-5 office usage remains down for the count.
“Time will tell whether the upticks augur a roaring recovery, a passing blip, or something in between,” according to Cuozzo. “We’d bet on the high middle ground as employers crack down on WFH excesses — and as remote workers grasp that when layoffs come, they’re the first to go.”
While Cuozzo has guarded optimism for “back-to-work” returning in some form, others think that New York’s supposed rebound is an anomaly – especially as downtown areas in cities as diverse as San Francisco, Salt Lake City and Miami continue to lack their pre-pandemic vibrancy.
Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia University, recently noted to Governing, a publication geared towards state and local officials, that cities across the U.S. continue to struggle to find a foothold in bringing workers back – and future trends aren’t exactly encouraging.
According to Van Nieuwerburgh, two-thirds of pre-pandemic leases have not yet come up for renewal, and the overall number of new leases being signed in metro areas has fallen more than 50 percent. “The second shoe has yet to drop on the office market, with leases that have not come up for renewal yet,” Van Nieuwerburgh said. “We’re going through a major revolutionary change that will take decades to play out.”
While cities are slowly waking up from their pandemic slumber, the suburbs are looking inward.
Suburban office vacancies skyrocketed since the pandemic first began, and demand for residential and industrial land took off in concert – and within older metro areas, the sprawling suburban office and innovation parks that once defined a new era of work sit idle.
Some localities are using the shifts in market demand to reboot efforts to transform these complexes, pressed by compounding market forces and a growing realization that office life has been transformed.
Melville, a hamlet on Long Island located roughly 15 miles east from New York City limits, is looking to jumpstart efforts to significantly retool itself. During the post-war years, Melville became known for its array of offices.
Now, companies like Japanese camera giant Canon call the area, one of the largest concentrations of office space in the New York metro area, home. But with office use waning, the Town of Huntington is currently sitting down with local residents to explore other mixed-use options that would transform Melville’s idle complexes into something more.
Huntington Town Supervisor Ed Smyth recently told Newsday that “…the big concern is what is the economic viability of these office parks going forward for the next five to seven years.”
“Over the last decade or so, the mindset of Long Islanders is a little more open to development than in the past. It used to be an automatic no; now it’s like, ‘let’s consider this,’” he said.
Even during the pre-pandemic years, suburban office parks have struggled to compete against the amenity-rich urban downtowns that tech giants favored, as well as the growing trend of work-from-home.
But transformative success — in the conservative suburbs of all places — is possible.
In Homdel, New Jersey, home to the former campus-like of Bell Labs, which occupied 472 acres of land in the center of town and contained nearly 2 million square feet of office space, was transformed by developers Somerset Development Corp. into a 21st century workspace that has thrived during the pandemic.
Calling itself a “metroburb,” the rechristened Bell Works transformed the campus into “a blossoming ecosystem of technology, traditional offices, retail, dining, hospitality, and much more.”
The redevelopment was successful, and the site continued to secure leases from tech startups and entrenched companies alike in recent years.
“In the past 15 months we’ve seen an unrelenting demand from businesses across industry sectors who simply want to be back in an office,” Tara Keating, vice president of The Garibaldi Group, Bell Works’ exclusive office leasing team, told Real Estate NJ in 2021 when Bell Works welcomed a new tenant who signed a 100,000+ square foot multiyear lease.