Dennis J Donovan, principal of WDGC was recently interviewed by Reuters on the potential impact of COVID-19 for the deployment of office operations for Manhattan based companies. However, remarks are applicable to companies based in other comparatively expensive Tier One Metro areas. The response, not all of which was published, is highlighted below.
- Manhattan will continue to thrive as an office location, but will there be more outward redeployment (in part due to COVID) than in recent years.
- Some companies will either relocate selected operations or seed/grow satellite offices to establish a hub/spoke strategy.
- This will be especially true for back office functions still housed in Manhattan (such as customer service).
- But the primary targets for redeployment or seed/grow will be middle office activities requiring knowledge workers that can be found in other areas at a lower price point (ideally 20% or more savings). Example of such functions include treasury, legal, fraud/compliance, settlements, asset management, procurement, marketing, etc. The relocation of selected middle office functions by Alliance Bernstein from NYC to Nashville is illustrative of this concept.
- Tier 2 or 3 metros areas will be the main beneficiaries of redeployment or seed/grow.
- However, we will continue to see some redeployment of higher end operations, to possibly include client interfacing/front office, to suburban locations within the Tri-State.
- Among preferred locational options either within Tri-state or tier 2/3 metros will be suburban communities with an urban appearance/flair.
- In a new twist, satellite locations will not be as mass transit dependent versus pre-COVID-19 (implication for tier 2/3 metros is that central business will not have as strong of an appeal for firms establishing new office operations in the respective metro).
- Due to COVID-19 there will some resistance to (a) commute via mass transit or (b) work in densely populated high-rise buildings. Of course, for Manhattan based companies moving operations to elsewhere in the Tri-State, it will be still be desirable (but not always essential) to be close to commuter rail.
- Many employees will prefer to drive to work rather than relying on mass transit.
- Low to mid rise buildings will have special appeal.
- Office space design/layout will change especially in high rise buildings (e.g., if the previous standard was 125/SF per FTE the new standard might be 150-160 SF).
- Health and hygiene will assume primacy in selecting office space.
- Among the features that office space/buildings will incorporate are:
- Socially distant workspace
- More private offices, mostly in an open floorplan but also more enclosed (albeit small) private offices
- Significantly larger collaborative space
- Smart elevators
- State of the art filtration systems that use ultraviolent light especially for cleaning when offices are empty
- Stone or laminate materials that can withstand heavy shampooing
- Maximum utilization of touchless technology
- Voice activated commands (e.g., for visual equipment)
- Workstations that have plexiglass protection (including sneeze guards)
- Sensors under desks to monitor body temperatures
- Visitors will need to be checked for temperatures before entering buildings
- There will be greater utilization of staggered work hours. Landlords will need to encourage cooperation/coordination with companies in multi-tenant buildings.
- A wholesale remote model will most likely be rare. Rather, most companies will encourage work at home 1-3 days a week.
- This in part due to the fact that the majority of workers, especially GEN Z, strongly prefer socialization at a physical workplace.
- Flexibility both for working at home and work hours will be most important for recruiting/retaining topflight talent.
- Facebook is an example of a distributed or satellite office strategy, albeit on a large scale per footprint.
- Recreational Equipment Incorporated (REI) is another example:
- HQ in Seattle, WA
- Decided to disperse operations within the Puget Sound (several smaller offices and a degree of telecommuting)
- Sold HQ to Facebook
- JPMC is demolishing its HQ at 270 Park Avenue (which was originally occupied by Union Carbide) to create the second tallest building in Manhattan:
- Pre-COVID-19 the plan was to house 15,000 workers
- In all likelihood, headcount will be less due to COVID-19 implications
- It is also conceivable that JPMC might consider some redeployment to existing (e.g., Tampa and Dallas) or new satellite offices
- 270 Park (straddling the Grand Central and Plaza submarkets) is an excellent location, including access for workers residing throughout the Tri-State
- Facebook taking the old Post Office at 730,000 SF is similarly well positioned (Penn Station submarket). Manhattan’s West Side is evolving into a major tech hub (colloquially referred to as Silicon Alley) with the likes of Facebook, Amazon, and Google.
- Hudson Yards star will not fade (a specific question raised during the Reuters interview):
- Encompasses the area from 10th-12th Avenues and W. 30th-34th Streets
- Highly attractive submarket for many companies and workers
- Interestingly, Facebook also has a major presence there
- Hudson Yards presents a unique operating environment which appeals to companies based in both downtown and midtown plus companies looking to establish a toehold in Manhattan. Among the attractions which resonate with both tech savvy and financial firms are:
- Modern, state of the art office space
- Floor to ceiling windows
- Flexible
- Room for expansion
- Energy efficiency
- Superior amenities
- Live/work/play environment
- Green/sustainable
- High Line urban park/walkway (outdoor public space)
- Among the premier tenants in Hudson Yards are Amazon, Boston Consulting, Blackrock, CNN, Facebook, Google, KKR, Point72, SAP, and Wells Fargo.
- Despite high rents (over $75/SF) this submarket will continue to be of interest to firms where the prestige and operating environment appeals to a wide swath of the region’s workforce and talent pipeline (recent college grads).
- Of course, Hudson Yards is not for everyone. Office rents are among the highest in Manhattan. There will be companies that cannot justify such an occupancy cost premium.