The coronavirus pandemic hit office REITs (real estate investment trusts) hard, particularly in major markets like New York City. At this point, real estate investors with office REITs in their portfolios are eager to see occupancy rates increase in Manhattan. And a new survey by the Partnership for New York City may be able to shed some light on when that will happen.
What return-to-work plans look like
The fear is that the longer it takes for companies to call workers back to the office, the longer office REITs with heavy concentrations of Manhattan properties will remain sluggish. Now the bad news is that only 12% of Manhattan office employees had returned to in-person work as of late May. However, employers expect that 29% of employees will have returned to office buildings by the end of July.
Things get a bit more encouraging from there, though. Companies now expect 62% of employees to be back to offices in September.
That said, 71% of employers plan to adopt a hybrid work schedule where employees do their jobs from the office for part of the week and work from home the remainder of the week. Of employers with plans to introduce a hybrid model, 63% will require employees to be in the office three days a week.
Hybrid models aren't ideal for office REITs because they allow companies to maintain less office space. But they're better than companies dumping office space altogether.
Who's coming back to work in person?
Office return rates vary significantly by sector, according to the aforementioned survey. While financial services companies expect 61% of employees to be back to the office by the end of September, tech companies expect only 40% of workers to be back by that same time. Tech jobs, however, may more easily lend themselves to remote work. After all, software developers and coders who spend hours at a time hammering away at their desks don't necessarily need an office environment to be productive.
Not surprisingly, the real estate industry expects the most robust near-term return to office buildings. An estimated 70% of real estate employees are currently working in an office, and 90% are expected to return by the end of July. By September, it's expected that 98% of real estate professionals will be back to in-person work.
It's also worth noting that larger companies are bringing workers back to office buildings more slowly, perhaps due to the logistics involved. While 24% of employees have returned to offices at companies with under 500 employees, only 8% have returned to office at companies with more than 5,000 employees.
The outlook for NYC's office REITs
The fact that return-to-work percentages are looking up for September is a positive sign for NYC-based office REITs. But investors shouldn't bank on a full-fledged return -- or recovery -- just yet.
For one thing, 84% of employers report that employee concerns about taking mass transit are an obstacle to returning to the office. Furthermore, the now-dominant delta variant may force some companies to rethink their back-to-work plans.
Employers that really want their workers to return to offices can implement measures to make that happen, like mandating vaccines and rolling out testing programs. But many companies won't be taking that step.
Of those surveyed, 72% will not require that returning employees are vaccinated (though of those, 22% are strongly encouraging vaccination). Meanwhile, 68% of employers won't require a negative coronavirus test for employees who return to the office unless they have symptoms of the virus or were recently exposed to it. And only 13% will require regular testing for unvaccinated employees.
All told, the rate at which workers return to office buildings and NYC's office REITs recover could hinge largely on the trajectory the coronavirus outbreak takes. REIT investors should be encouraged by these survey results but acknowledge the potential for plans to change in a less favorable way.