'Do I Really Need This Much Office Space?' Pandemic Emptied Buildings, But How Long?
SACHA PFEIFFER, HOST:
Empty office buildings across the country are starting to present a problem. After all, commercial tenants play - pay rent to landlords, who pay taxes to cities and states that need the revenue. Reporter Ryan Kailath looks at the unintended consequences of rethinking the office.
RYAN KAILATH, BYLINE: Adam Johnson enjoys the office. It helps that he works from one of the nicest buildings in New York - on Fifth Avenue above Bergdorf Goodman. Plus, he likes his co-workers.
ADAM JOHNSON: I am the only person who's been coming in here since April 1.
KAILATH: Johnson's a stock picker. He writes an investment newsletter called "Bullseye Brief," and he used to share the sixth floor here with a bunch of hedge funders.
JOHNSON: Just look at all these empty rooms. I mean, down here as you go by the windows - primo office space - gone, gone, gone, gone.
KAILATH: The showstopper conference room overlooking Central Park and the Plaza Hotel...
JOHNSON: I come in here, and I do yoga. I mean, I'm the only person on the entire sixth floor - 40,000 square feet of space altogether. And yeah, the million-dollar conference room is now where I come and do pushups and sit-ups and kind of hang out.
KAILATH: On the way out, I stopped on 15 floors in the building and found one other person.
AUTOMATED VOICE: Going down.
KAILATH: With commercial real estate, economic crises tend to hit the ground floor first, knocking out the smaller shops and restaurants. Problems don't creep upstairs to the office floors until months later, when tenants break their leases or decide not to renew. So for cities, empty office buildings present a looming crisis. The landlord of Adam Johnson's building did not want to discuss this. Others are less shy.
JEFF BLAU: You know, I feel like it's a little bit of companies' civic duty to return to the office.
KAILATH: Jeff Blau is CEO of the Related Companies, one of the biggest office landlords in New York. As you can imagine, he doesn't love our new work-from-home utopia.
BLAU: You hear announcements like Google made, saying their employees don't have to be back - I think it was June or July of '21. You know what happens when people do that?
KAILATH: Temporary relocations can become permanent relocations. The daytime population shrinks, which means even less traffic into local businesses.
BLAU: Then the economy is going to be terrible. Companies are going to shrink in size, and they're going to demand less office space. Rents will decline, and it becomes a vicious cycle. So that's exactly what we're trying to prevent here. That's the worst case.
KAILATH: Blau insists his concern is the future of our cities, not his 30 million square feet of office space. He says his buildings are still a hundred percent rented, with all tenants paying - so far. So Blau's been working the phones, trying to get companies back in the office.
BLAU: There's not many people that I know in industry that I have not spoken to, whether it's finance, media, law firms, private equity, hedge funds.
KAILATH: Blau's pitching them on top-of-the-line safety features - one-way air circulation, double temperature checks and strict contact tracing. Regardless, some companies are going to reduce their office footprint. Moody's Analytics thinks landlords will have to drop rents 21% this year to find new tenants. That's worse than the Great Recession, though for some, it's an opportunity.
Stuart Saft is a partner at Holland & Knight, a law firm with a big midtown office - five floors, 150 lawyers. Six months ago, he was looking for ways to reduce space - maybe fewer private offices, new hires working in a bullpen.
STUART SAFT: That lasted until about the third week of the pandemic, when all of a sudden, everybody realized people do need to have private offices. We need more space than we have right now.
KAILATH: With his lease ending soon, Saft expects to get a great deal on a new one. Companies with cash on hand can sort of use the crisis this way. Just recently, Facebook and Amazon added millions of square feet of space in Manhattan. Smaller players might have to break their leases or downsize, which means whenever people do return to the office, their city could look pretty different.
For NPR News, I'm Ryan Kailath in New York. Transcript provided by NPR, Copyright NPR.