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Companies explore suburbs as social distancing complicates return to NYC

by Reuters
Wednesday, 13 May 2020 20:44 GMT

Firms are considering leasing spaces in suburban districts as dense city centres pose challenges in returning to work

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By Herbert Lash

NEW YORK, May 13 (Reuters) - With a mass return to offices looking like wishful thinking in New York and other cities even as businesses start to reopen as the coronavirus outbreak is contained, companies are exploring real estate options in the suburbs.

Some are enquiring about flexible leases, all of which suggests that a back-to-the-suburbs trend already in place before the coronavirus outbreak could accelerate at least for a few years, according to anecdotal evidence and real estate analysts.

Six-feet social distancing will limit mass transit usage and create bottlenecks at elevators despite landlord efforts to speed the process. Densely populated cities, especially in Asia, that are skyscraper friendly, constrained by geography and mass transit-dependent have already encountered difficulties in reopening.

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Many brokers say leasing is almost at a standstill and without strong data it is hard to draw firm conclusions about suburban satellite offices, although there are telltale signs.

James Ritman, a managing director at brokerage Newmark Knight Frank in Stamford, Connecticut, 35 miles northeast of New York, has received one to three inquiries a day in the past week by companies ready to lease space or contemplating such a move.

Some are groups are looking at spaces, others are in the fact-finding stage. "They're gathering data," Ritman told Reuters.

"All this demand, all this activity that is coming out of New York, is 100% based on the virus, the fact that there is an uncertainty surrounding New York City with mass transit, with buildings and spaces that are typically pretty dense," he said.

Jonathan Wasserstrum, founder and chief executive of SquareFoot in New York, has seen a notable pick-up in searches for leases under three years.

"We're seeing a higher percentage of people who want more shorter-term leases," he said. "In times of uncertainty you want flexibility."

The days of packed elevators are over, said Dennis Donovan, principal at Wadley Donovan Gutshaw Consulting in Bridgewater, New Jersey, which advises corporations on where to locate their businesses. "Buildings that don't have fast and smart elevators are going to be at a huge disadvantage."

Touchless technologies will proliferate and buildings with sophisticated ventilation systems will be in demand, he said.

But an increased emphasis on the suburbs will not lead to a big drop in employment or office vacancies in New York or other gateway cities, Donovan predicted. Plus tenants are obliged to meet lease payments.


Transit-dependent cities in Asia such as Tokyo, Singapore, Hong Kong, Beijing and Shanghai that are already reopening offices or soon will face trouble coming back on line, said Jacques Gordon, global strategist at LaSalle, a unit of Jones Lang LaSalle Inc in Chicago.

In bicycle-friendly Europe, workforces in Amsterdam, Copenhagen and Stockholm were encouraged to pedal back to work.

"The people who returned to work in our Munich office last week relied heavily on bikes to get to work," he added.

While a migration to the suburbs now makes sense, within two or three years a highly skilled workforce and world-class entertainment and cultural venues will lead companies back to New York, Gordon said.

Others disagree that a move back to suburbia is happening.

"It is all hearsay at the moment," said a broker at a well-known brokerage who declined to be named. "There are no stats to support it until spaces are listed and leases are signed."

If short-term space in the suburbs is leased, it is highly unlikely companies will sublease their office space and increase availability in New York, this broker said.

"They will de-densify their New York locations to make a safer work environment for the employees that can get to their Manhattan offices," he said.

Jamie Hodari, chief executive and a co-founder of Industrious, a flexible workspace provider, said management will err on the side of caution for the first few weeks of reopening buildings and as people get accustomed to waiting for elevators.

Landlords have detailed plans to ensure tenant safety, said Bob Savitt, founder and president of Savitt Partners, owner of almost 3 million square feet of Manhattan properties.

"Everybody's waiting. Every building in New York is in the same position, they all have to wait," said Savitt. Even so, he added, "Not all companies will be coming back 100% when (New York Governor Andrew) Cuomo says it's OK." (Reporting by Herbert Lash; Editing by Alden Bentley and Leslie Adler)

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