Friday, May 15, 2020

How Will COVID-19 Impact Big Cities?

The Big Apple, from Rockefeller Tower. Photo by Jonathan Riley on Unsplash
The New York Times ran a story this week about the potential disruption that might be caused if large Manhattan firms decide that working in offices is not that important anymore. The link to the full article, titled Manhattan Faces a Reckoning if Working From Home Becomes the Norm, is at the bottom of this page.

When the pandemic full force in March, the first two observable changes were the cancelling of events and the closing of restaurants, bars churches and other places where people congregate. The third change, less visible but widespread, was the emptying of office spaces, getting people set up to work at home. It was amazing how quickly this latter was implemented, and at first it seemed like a temporary adjustment companies were making.

Now that we are two months down the road, Twitter announced that this may be permanent. Facebook, Google and other behemoths have adopted the new work-from-home response as well, the the Times speculates that the impact on Manhattan could become a major problem if after the crisis eases, companies let workers stay home. That would affect an entire ecosystem, from transit to restaurants to shops. Not to mention the tax base.

Only the beginning?
Before the coronavirus crisis, three of New York City’s largest commercial tenants — Barclays, JP Morgan Chase and Morgan Stanley — had tens of thousands of workers in towers across Manhattan. Now, as the city wrestles with when and how to reopen, executives at all three firms have decided that it is highly unlikely that all their workers will ever return to those buildings.

The research firm Nielsen has arrived at a similar conclusion. Even after the crisis has passed, its 3,000 workers in the city will no longer need to be in the office full-time and can instead work from home most of the week.

But now, as the pandemic eases its grip, companies are considering not just how to safely bring back employees, but whether all of them need to come back at all. They were forced by the crisis to figure out how to function productively with workers operating from home — and realized unexpectedly that it was not all bad.

If that’s the case, they are now wondering whether it’s worth continuing to spend as much money on Manhattan’s exorbitant commercial rents.

The the article states that "the number of workers who actually prefer to be in an office because of the opportunity for social interaction is an unknown factor."

The story notes that "Barclays, JP Morgan Chase and Morgan Stanley are part of a banking industry that has long been a pillar of the city’s economy, with more than 20,000 employees. Collectively, they lease more than 10 million square feet in New York," which is roughly equivalent to all the office space in downtown Nashville.

How much money does New York City collect in real estate taxes? What happens if real estate values decline as companies abandon this skyscraper way of life?

* * * *
Duluth is hardly a big city, but there are repercussions here as well. Yesterday I was walking on Superior Street downtown and couldn't help but notice the number of signs seeking to sell or lease office space and storefronts "down on Main Street." (Yes, the song entered my head, triggered by what I was seeing.)

Real estate has always seemed like a safe bet for people with money because historically it increases in value. But what if the shift to cocooning hits our own downtown office spaces? What are our current occupancy rates for office space in Duluth? What will they be two years from now?

The bigger variable in Duluth is the reliance on tourism revenue. If you are in a tourist town and tourism comes to a halt due to a global pandemic, then what? Duluth relies on a tourism tax to generate revenue to keep the city operational. That's a 12 million dollar influx of cash from outsiders. That's only the taxes. Think of the millions of dollars lost by businesses dependent on that influx of tourists?

Shelter-in-place means Canal Park hotels and motels have empty parking lots and empty rooms. I believe the Radisson was celebrating its 50th anniversary this year. What happens when you throw a party but no one can come?


In a lighter vein... is there anyone with Photoshop skills who can
place PPE masks on all the faces in this photo for me? I'd love to share it 
next week during our Virtual Dylan Fest. I will, of course, give you credit.


Related Links
Manhattan Faces a Reckoning if Working From Home Becomes the Norm
Duluth Dylan Fest 2020: Schedule of Virtual Events

3 comments:

David Beard said...

You can get info about occupancy rates in the different classes of offices from BOMA. The only stats I could find easily online indicated that 10% vacancy is where Duluth was hovering just before the Great Recession.

BOMA/Duluth
George W. Kratzner
306 West Superior St
Ste 1605
Duluth, MN 55802-1816
UNITED STATES
(218) 722-0816
gkratzner@oneidacres.com

Personally, I think that "work from home" is exhausting a lot of good people. People's work cycles and habits are being pressed in new ways, increasing both productivity and exhaustion.

Ed Newman said...

Thanks for the lead, David.
As for the changes... I have heard the word "exhaustion" a number of times this week.
It will be interesting to see how it all plays out.

Katleen Garcia said...

The coronavirus pandemic is disrupting the global economy and businesses everywhere. Like others affected by this development, your organisation faces an unprecedented challenge with managing your workforce. As a partner to employers around the world, we’re ready to continue supporting your goals and providing the expertise, advisory services and best practices to help your organisation weather this global health emergency