Class B And C Office Landlords Weigh Decisions As Society Moves To Post-Pandemic Reality

Returning to the office has been complex to say the least. 

Over the last two years, companies have finalized return dates and indefinitely delayed them countless times, leading office building owners to be at a crossroads.  

This spring appears to mark a stark shift in the uncertainty, with many firms officially bringing employees back into the workplace for the first time in years. However, landlords of Class B and C buildings are not seeing the same pace of rebounding as their Class A counterparts. 

While some of these landlords simply have taken a wait-and-see-approach, others realized the necessity of updating their interior and amenities in order to compete with Class A buildings. 

However, one in five Manhattan offices remained vacant as of the end of 2021 according to Cushman & Wakefield. By mid-March, less than 40% of offices in New York were occupied based on estimates from Kastle Systems.  

Beyond the need for modern amenities, the shift to hybrid working has also impacted the office returns as more professionals split their time between the workspace and their homes. This indicates the need for even more changes to office layouts, locations, business hours, and zoning. 

“What’s going to happen in the next six to eight weeks is going to be pivotal in terms of the future of office space and whether people move back to the office,” said Kate Wittels, a partner with HR&A Advisors. “Companies have been accepting of realistic health concerns. Assuming the next variant doesn’t turn into an omicron and delta, now is the conversation about work preference.” 

As part of this embrace of new work preferences, landlords and developers are turning their sights into flexible office models. However, these will likely not replicate those of now-defunct operators. 

Instead, flexibility within commercial buildings will see workers have the ability to share their workspaces with other professionals closer to their homes and outside of main city hubs. 

Servicing suburbs and neighborhoods allows workers to achieve more freedom in their scheduling and location that they desire, while also allowing companies to cut down on their overhead expenses and adopt a hub-and-spoke model 

“It’s pretty clear the one amenity to rule them all right now is to have a flex operation in the building,” said Jamie Hodari, CEO of Industrious. “You look at operators and no one is saying, ‘I need a rooftop terrace and an Equinox or I’m not going to sign.’ Lots of people are saying, ‘If I’m going to sign a long-term lease I need to know I can shrink down in size and have a flexible space.’”