There was a time during the COVID-19 pandemic when New York City offices were empty and finance firms working remotely began to look for office locations outside of the Big Apple, including New Jersey, Stamford and Long Island, but interest has since dissipated, Bloomberg reports. Suburban brokers and landlords’ hopes were dashed amid major Wall Street firms’ accelerated return-to-office plans at their respective headquarters.
“A lot of people had knee-jerk thoughts, but didn’t make knee-jerk decisions,” Ted Stratigos, a Long Island-based managing director at brokerage Avison Young told Bloomberg.
The shift would have been a boost for the area’s suburban campuses, which have become more vacant over the years as big finance firms have put more attention on their Manhattan properties. Suburban office space has seen the opposite of what’s gone on in the housing market—there’s been high demand for homes outside of the city, but the office market has either remained the same or gotten worse.
For example, Citigroup recently stopped its search for short-term satellite offices in the suburbs so it could reassess its workplace plans in Manhattan, according to people familiar with the matter. The company considered leasing temporary space in areas like New Jersey, Long Island and Westchester, NY during the pandemic to accommodate employees who lived there, Bloomberg reports.
Opening satellite locations while employees were spread out in different regions made sense. Now that executives want workers under the same roof in the name of collaboration, along with culture and training, regional offices have become an afterthought. Businesses find it easier for their workforces to interact at a central location. Plus, companies are exploring flexible work schedules, which would allow employees to commute to Manhattan part of the week and work remotely for the rest of it.
Meanwhile the growing job flexibility trend has forced some businesses to re-evaluate their real estate needs and potentially decrease their footprint, according to Nicole LaRusso, CBRE Group Inc.’s director of research for the New York region.
“It’s going to take time for occupiers to figure out the best solution based on not only where people have settled from a residential standpoint, but also how much time they need to be in the office,” LaRusso told Bloomberg.
The fall of the regional office
Since the end of June, New Jersey has had the highest office vacancy rate in the United States—27.3% of space was available for lease or sublease, according to Jones Lang LaSalle, Inc. Fairfield County, CT ranked third and New York’s Westchester County finished sixth in the markets with the emptiest offices.
“I haven’t seen one New York-centric employer looking for space,” Kenneth Pasternak, whose firm KABR Group owns about two million square feet of offices in New Jersey, told Bloomberg.
Greenwich, CT has been one of the few suburban areas that’s still managed to garner some office demand, Bloomberg reports. Its downtown area was Fairfield County’s only market that saw asking rents go up during the first quarter. Interest in Greenwich office space has predominately come from private equity firms and fund managers that want to set up small outposts, however. The big banks and need larger spaces still haven’t shown much interest, according to James Ritman, a Connecticut-based executive vice president at Newmark Group.
Suburban offices were only meant to be a temporary solution during the COVID-19 pandemic for many companies. With vaccines becoming more available however, big financial firms like JPMorgan Chase and Goldman Sachs have already asked employees to return to the office. Other companies have set post-Labor Day return dates.
“When these firms were looking, they weren’t sure when things were going to open back up,” Ritman said. “A lot of it was put on pause because suddenly, it didn’t seem like a three-year horizon, more like one year to 18 months tops.”
Tenant demand has also lowered suburban campuses’ appeal. Since the pandemic, tenants want buildings with better locations, amenities and filtration systems. Meanwhile, banks are realizing rather than maintaining backup sites in the event of an emergency, they can just send their employees home and let them work remotely.
Some suburban brokers are holding out hope that businesses will seek office space outside of the city again once they get a better handle on their office strategies.
“A lot of decisions now aren’t COVID-related, it’s really following employees, and such a large basis of employees moved out here,” said Ritman. “Employers will be considering whether people will commute in or if they’ll have offices close to people.”
Joe Dyton can be reached at firstname.lastname@example.org.