NEW YORK, NEW YORK: Office buildings make up the heart of midtown Manhattan in New York City. Some … [+]
There’s no doubt been a change in the way people work post-Covid, and many firms are embracing hybrid schedules. In certain sectors, this shift from remote to in-person has stirred demand for work areas. As WeWork’s Chief Revenue Officer Ben Samuels mentioned in a Yahoo!Finance interview, there’s been a real scramble for space in some of their markets.
Taking a closer look at these fluctuations, we can identify several factors that are impacting the return to office trends. The level of demand for workplaces is largely dependent on the industry, city, submarket, and building type, based on the findings in my company Avison Young’s State of the Market Q1 2023 report. Let’s review each of these as we consider how some office markets have performed better than others.
1. Some Industries Have Higher In-Person Work Rates
In Manhattan, in-person office visits at the end of 2022 were 90.9% of their 2019 levels for biotech, life sciences, pharma and healthcare sectors, per Avison Young’s report. Other industries had strong turnouts as well, with the media reaching an in-person rate of 71.6% compared to pre-pandemic levels, and banking and finance hitting 60.2%. These were all above the average for Manhattan’s overall office visitor showings, which was 55.7% at the end of 2022 relative to end of year 2019.
That figure has continued to climb in recent months. Visitation rates for all building classes and markets in Manhattan averaged 61% in Quarter 1 2023 compared to pre-pandemic 2019 baseline levels, according to the Real Estate Board of New York (REBNY). With CEOs like Jamie Dimon of JPMorgan & Chase Co calling workers back to the office, it’s possible that in-person rates for certain sectors like banking and finance will increase in the coming months.
While some industries such as healthcare and real estate lean toward in-person work, others have been slower to return to the office. In Manhattan, the segments of consulting and public relations had lower levels of in-person work during the end of 2022, perhaps due to digital channels and connections. Technology trailed the average rate, with just 47.4% of in-person visits in December of last year relative to 2019 levels, according to Avison Young data.
2. Cities Have Different Drivers
Manhattan, Fort Lauderdale, Dallas-Fort Worth, and Nashville all held higher in-person rates at the end of 2022 than the national average relative to the week of December 9, 2019, per Avison Young’s report. Places with lower return-to-office showings included Seattle and Chicago.
These percentages largely coincide with the labor pool in these areas and the type of work being carried out. In markets with low unemployment rates, companies may seek ways to attract and retain talent. For industries like technology, this could mean more relaxed stances on back-to-work policies. In segments where the unemployment rate rises, employers may be able to be stronger about their expectations on returning to the office.
3. Submarkets Matter Too
Within a city, different neighborhoods may lean more heavily into in-person work, while others remain remote. Taking a close lens to Manhattan reveals higher back-to-work percentages for Greenwich Village, Tribeca, and Chelsea, based on data presented by Avison Young. This tells us people want to live and work in these areas and are happy to come into the office. Job growth and neighborhood amenities, along with the type of office environment, will all play a role in submarket office performance.
4. Higher Quality Office Buildings Perform Well
Class A+ properties continue to outperform Class B properties, as well as A and A- buildings, according to data from REBNY. In New York City, Trophy and Class A properties have an inventory share of just 10%. However, these classes accounted for 71.8% of leasing activity in 2022. In 2023, their share increased to 73.6%, per Avison Young’s findings. Location visits were up for Class A+, A/A-, B, and C buildings during the first quarter of 2023, compared to 2019 levels, as reported by REBNY. Class A+ had the highest increase at 68%, followed by A/A- with 60%, and then B&C which had 57%.
Clearly, there’s a strong increase in demand for higher quality buildings. The data reflects a shift by companies looking to upgrade their work environments. ESG-compliant buildings that promote healthy conditions could be seen as a draw, especially in areas with tight labor pools.
If you’re an investor looking to get into the office market, you’ll have to be very specific about where you want to be and what type of product you buy. As you study a neighborhood, check the industries that operate there, along with the city and submarket drivers. Remember that return to office decisions are largely influenced by the type of building. Owners may opt for higher quality properties with better accommodations, outdoor spaces, and green environments to motivate workers to come back to the office.
