Office isn’t completely dead. Instead what we’re seeing is an evolution of the asset class, especially in urban areas like New York City Bruce Mosler, chairman of Cushman & Wakefield, explained to Fox Business.
It’s all about providing an innovative work district, that appeals to younger Americans.
“The verdict is in,” Mosler said.
“Where we are seeing outperformance is in these live, work, and play environments like The Penn District, Manhattan West, or Hudson Yards. This particular generation [Gen Z, and millennials] wants to see hospitality in their office buildings, they want to walk outside, have [food and beverages], and entertainment. All these things are what make a city like New York extraordinary.”
In August, Manhattan offices were found to be 73.4 percent as busy compared with the same month in 2019, according to a recent report from Avison Young. That’s up significantly from the national average of 60.4 percent. The visitations on peak days, coupled with RTO mandates that have been instituted by more employers (most notably Amazon), are leading to the office asset class “probably” bottoming out, according to Mosler.
The real estate veteran also listed San Francisco as another market that’s seeing a strong office revival like New York.
While occupancy rates have risen from the pandemic lows, a popular trend has been converting vacant office space into another commercial use. In fact, CBRE said in a report that it expects office conversion projects to double this year compared with 2023. And that’s even happening in Manhattan, with Vanbarton Group reportedly making two recent acquisitions, costing nearly a combined $200 million to transform offices into residential units.
Mosler calls the trend “highly complex,” and whether a repurposing of assets makes sense or not depends on a variety of factors.
“It depends on the floor plate size, the location,” he said.
But given the housing shortage crisis, Mosler admitted that more residential space is needed, and converting office space might be a way to do it.
“We’re hearing about assets converting every day and we know we need more residential buildings in this city (NYC),” he noted.
“Without additional housing, it’s going to be hard to retain the workforce of the future.”
But still, it sounds like office is here to stay, as long as employees can keep workers happy with amenities. The question is will visitations return in full or even grow from pre-pandemic levels?
“There’s no question that people are more effective when they sit opposite one another. Without collaboration, you have no innovation,” Mosler said.
“So people are getting that.”