When the coronavirus outbreak first erupted in early 2020, many employers were quick to tell their staff to pack up their desks and revert to remote work. That trend was especially common in New York City, which was deemed the pandemic's initial epicenter domestically. But while some office markets have, since the start of the outbreak, seen a slow but steady return, Manhattan's office market seems to be lagging behind.
A sluggish recovery
Manhattan office buildings are experiencing higher vacancy rates than other popular office markets -- notably, Los Angeles and Chicago. While the three office markets -- the nation's largest -- were all impacted last year when the outbreak first struck, Manhattan saw the most extreme office exodus initially.
Two weeks after all three cities enacted stay-at-home orders, office attendance rates in Manhattan had declined to just 17% of the average for the first quarter of 2020, according to Brivo. By contrast, office attendance rates fell to just 21% in Chicago and 41% in Los Angeles.
In fact, in Los Angeles, office attendance rates never dropped below 41% of 2020's first-quarter average, and rarely below 50%, in any nonholiday week throughout the lockdown. And a big reason likely boils down to the fact that commuters in LA tend to use their personal vehicles to get to work, whereas cities like NYC and Chicago are far more reliant on public transportation -- something many people stayed away from when COVID-19 cases were surging.
At this stage of the pandemic, many companies are making plans to return workers to offices, and some markets are recovering at a decent pace, which is good for office real estate investment trusts, or REITs. But Manhattan still seems to be several steps behind on the recovery front.
Between the first week of 2021 and the week of June 28, office usage rates rose by 27% in Chicago but by barely 20% in Manhattan. Los Angeles, even with its much higher base of people who never stopped going into work, also beat Manhattan's rate of return to office buildings.
Meanwhile, as of the week of July 12, Manhattan's office attendance rate was just 41% of its pre-lockdown numbers. Chicago, by contrast, sat at 47% and Los Angeles sat at 66%.
Investors will need to be patient
At this point, a lot of companies are rethinking their return-to-office plans in light of the success of remote work coupled with the emergence of the delta variant. Apple, for example, will be delaying its office opening due to the turn the pandemic has taken, and it's just one of many large companies to go this route.
It could be quite some time until office occupancy rates get anywhere close to pre-lockdown levels, and investors with office REITs in their portfolios will need to sit tight and wait things out. This especially holds true for those invested in REITs with large concentrations of Manhattan office buildings.
The good news is that a growing number of large companies are implementing vaccine mandates in an effort to make it safer for workers to come back to in-person work. But until things settle down as far as the coronavirus outbreak is concerned, attendance rates could remain very low in Manhattan as well as other key markets as companies play it safe and ride out the storm.