After Pandemic, Shrinking Need for Office Space Could Crush Landlords

Roughly 17.3 percent of all office space in Manhattan is available for lease, the highest proportion in at least three decades. Asking rents on the island have dropped to just over $74 a square foot, from nearly $82 at the beginning of 2020, according to a recent report by the real estate services company Newmark. Elsewhere, asking rents have largely stayed flat from a year ago, including in Boston and Houston, but have climbed slightly in Chicago.

The Japanese clothing brand Uniqlo, whose United States headquarters are in Manhattan’s SoHo neighborhood, recently relocated to another office building nearby, an open layout with tables designed for its work force of 130 people who will come into the office only a few days a week. Many of its office workers will keep working remotely after the pandemic, while some employees, like those in the marketing department, will hold meetings occasionally in SoHo.

“As a leader, it has been challenging because meeting people face-to-face is so important,” said Daisuke Tsukagoshi, the chief executive of Uniqlo USA. “However, since we are a Japanese company with global reach, the need for remote collaboration among many centers has always been part of our culture.”

The stock prices of the big landlords, which are often structured as real estate investment trusts that pass almost all of their profit to investors, trade well below their previous highs, even as the wider stock market and some companies in other industries like airlines and hotels that were hit hard by the pandemic have hit new highs. Shares of Boston Properties, one of the largest office landlords, are down 29 percent from the prepandemic high. SL Green, a major New York landlord, is 26 percent lower.

Fitch Ratings estimated that office landlords’ profits would fall 15 percent if companies allowed workers to be at home just one and a half days a week on average. Three days at home could slash income by 30 percent.

Senior executives at property companies claim not to be worried. They argue that working from home will quickly fade once most of the country is vaccinated. Their reasons to think this? They say many corporate executives have told them that it is hard to effectively get workers to collaborate or train young professionals when they are not together.

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Returning to the Office Sparks Anxiety and Dread for Some

Last fall, after some of the restrictions had eased in Germany, Trivago, a travel company based in Düsseldorf, let employees work remotely three weeks of the month and then spend one week in the office. The office weeks were designed for collaboration and were treated like celebrations, with balloons hanging from the ceilings and employees plied with coffee and muffins, said Anja Honnefelder, the chief people officer and general counsel of the company.

But the experiment failed, she said. “We saw that many of the people only came back for two or three days during the week because it felt unnatural, all of the social interactions,” said Ms. Honnefelder, who described her staff as young and made up largely of software engineers and data scientists. “They felt like they couldn’t get their work done and that it was disorienting.”

So, in January, Trivago announced that employees would come back to the office two days a week, but it has not been able to implement the plan because Germany has imposed new restrictions because of a rise in coronavirus cases.

“What we think will happen is that employees will use the two days to socialize, have extended lunches and work with their teams because they know, for the rest of the week, they will have time to focus and manage their own work and not be distracted,” Ms. Honnefelder said.

The ability to focus on work without distractions from other employees is the main reason Mr. Jaakola, the Minneapolis software engineer, does not want to return to the office. He admits he finds dealing with other people kind of “draining,” and hopes his company won’t force him to return to the office, even for a few days a week.

“My sense is that my company will try to go back to how things were before and I think they’ll quickly realize there are a lot of remote possibilities out there for us,” he said. “If they try to force us to come in without a legitimate reason, I can get another job if I don’t want to come in.”

Gillian Friedman and Lauren Hirsch contributed reporting.

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How the Pandemic Changed Office Design: Hot Desks and Zoom Rooms

Since the pandemic sent workers home last year, a slew of modifications have been made to office buildings to protect against the spread of the coronavirus. Now, as companies prepare to bring workers back, experts say even more changes are on the way.

Expect expanded gathering spaces and fewer personal workstations, for instance, changes that are being fueled by the success of working from home. Companies like Google, Microsoft and Walmart have already announced proposals for hybrid work models that will allow employees to continue to work remotely at least a few days a week.

These new arrangements mean companies may need less office space, and some have already cut back on their real estate needs, according to a survey from the consulting firm PwC. Target said this month that it was giving up office space in downtown Minneapolis, and in September, the sporting goods retailer REI sold its newly built headquarters in Bellevue, Wash.

“We really are at an inflection point,” said Meena Krenek, an interior design director at Perkins+Will, an architecture firm that is revamping offices, including its own, for new modes of working.

a return to the office in the summer and fall. Desks were dragged six feet apart and Plexiglas barriers installed between them. One-way arrows were stenciled on corridor floors, chairs were removed from conference rooms, and an elaborate choreography was developed to determine how and when teams would return to avoid overcrowding.

Then many workers simply stayed home. As the pandemic dragged on and people got the hang of Zoom, many discovered it was possible to be productive while parked on living room sofas or in backyard lawn chairs.

Now, as company heads are again planning for a return to the office, not only safety measures but also the new work arrangements are driving discussions about the postpandemic workplace. More than 80 percent of companies are embracing a hybrid model whereby employees will be in the office three days a week, according to a new survey by KayoCloud, a real estate technology platform.

Workplaces are being reimagined for activities benefiting from face-to-face interaction, including collaboration on projects and employee training, as a way to promote a company’s culture and identity.

holographic representations of employees who are off site but could still take a seat at the table.

For now, some companies are having in-person attendees continue to use their laptops so that remote workers can see everyone on their Zoom screens, an effort to “help maintain a sense of equivalency that we’ve come to expect,” said Peter Knutson, chief strategy officer of A+I, a design firm.

Devices combining 360-degree cameras, microphones and speakers are being placed on a table or tripod to improve sound and visibility. In the future, these technologies are likely to be built into gathering places and the number of screens increased, transforming the conference room into a “Zoom room,” Ms. Krenek said.

Likewise, some phone booths — the closet-size pods deployed in open-plan offices to give workers a place to make private calls — may give way to videoconferencing booths, which some manufacturers have introduced with built-in screens.

Screens are destined to pop up elsewhere. One near the coffee bar or at a cafe table could allow those on the premises to meet virtually for a latte or lunch with colleagues working remotely.

And digital whiteboards are likely to become more popular, so workers at home can see what’s being written in real time.

foot pedals to activate elevators. Buttons on walls outside restrooms can be pressed with an elbow, averting the need to touch door handles. Some companies are adding foot-operated door openers.

The coronavirus has focused attention on air quality in what may be a lasting way. Outdoor spaces — roofs, terraces and courtyards — were popular before the pandemic and have become more so as fresh air has gone from being a nicety to being a necessity.

Landlords have in some cases adjusted HVAC systems to increase the amount of outdoor air being pumped in. They are also upgrading filters to trap smaller airborne particles.

Some measures are being enshrined in leases, said Geoffrey F. Fay, a real estate lawyer with Pullman & Comley. But landlords are doing such things proactively, he added, as they try to make offices as enticing as possible at a time when tenants may be wondering if they even need to rent space anymore.

“Landlords realize we are on the precipice of change,” he said. “They want to make employees feel comfortable to the extent they’re coming back to the office.”

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Remote Work Is Here to Stay. Manhattan May Never Be the Same.

Spotify’s headquarters in the United States fills 16 floors of 4 World Trade Center, a towering office building in Lower Manhattan that was the first to rise on the site of the 2001 terror attacks. Its offices will probably never be full again: Spotify has told employees they can work anywhere, even in another state.

A few floors down, MediaMath, an advertising tech company, is planning to abandon its space, a decision fueled by its new remote-work arrangements during the pandemic.

In Midtown Manhattan, Salesforce, whose name adorns a 630-foot building overlooking Bryant Park, expects workers to be in the office just one to three days a week. A nearby law firm, Lowenstein Sandler, is weighing whether to renew its lease on its Avenue of the Americas office, where 140 lawyers used to work five days a week.

“I could find few people, including myself, who think we are going to go back to the way it was,” said Joseph J. Palermo, the firm’s chief operating officer.

sparked an extraordinary exodus of workers from office buildings, what had seemed like a short-term inconvenience is now clearly becoming a permanent and tectonic shift in how and where people work. Employers and employees have both embraced the advantages of remote work, including lower office costs and greater flexibility for employees, especially those with families.

Beyond New York, some of the country’s largest cities have yet to see a substantial return of employees, even where there have been less stringent government-imposed lockdowns, and some companies have announced that they are not going to have all workers come back all the time.

In recent weeks, major corporations, including Ford in Michigan and Target in Minnesota, have said they are giving up significant office space because of their changing workplace practices, while Salesforce, whose headquarters occupies the tallest building in San Francisco, said only a small fraction of its employees will be in the office full time.

But no city in the United States, and perhaps the world, must reckon with this transformation more than New York, and in particular Manhattan, an island whose economy has been sustained, from the corner hot dog vendor to Broadway theaters, by more than 1.6 million commuters every day.

to return in early May, in part as a signal to other employers that filling New York’s buildings is a key to its recovery.

“This is an important step for the city, and it’s another important step on the way to the full recovery of New York City,” Mr. de Blasio said.

Still, about 90 percent of Manhattan office workers are working remotely, a rate that has remained unchanged for months, according to a recent survey of major employers by the Partnership for New York City, an influential business group, which estimated that less than half of office workers would return by September.

Across Midtown and Lower Manhattan, the country’s two largest central business districts, there has never been more office space — 16.4 percent — for lease, much higher than in past crises, including after the Sept. 11 terror attacks in 2001 and the Great Recession in 2008.

As more companies push back dates for returning to offices and make at least some remote work a permanent policy, the consequences for New York could be far-reaching, not just for the city’s restaurants, coffee shops and other small businesses, but for municipal finances, which depend heavily on commercial real estate.

Sarah Patellos, who is on Spotify’s music team, has been working from a dining room table in Truckee, Calif., a mountain town near Lake Tahoe where she has spent most of the past year after flying there for a weekend trip in March 2020 and getting stuck because of government-imposed lockdowns.

on CNBC. “As for everyone working from home all the time, there is also zero chance of that.’’

from the $1.9 trillion federal stimulus package: $5.95 billion in direct aid and another $4 billion for schools, a City Hall spokeswoman said.

While that addresses immediate needs, the city still faces an estimated $5 billion budget deficit next year and similar deficits in the following years, and a changing work culture could hobble New York’s recovery.

The amount of office space in Manhattan on the market has risen in recent months to 101 million square feet, roughly 37 percent higher than a year ago and more than all the combined downtown office space in Los Angeles, Atlanta and Dallas. “This trend has shown little signs of slowing down,” said Victor Rodriguez, director of analytics at CoStar, a real estate company.

At least one industry, however, is charging in the opposite direction. Led by some of the world’s largest companies, the technology sector has expanded its footprint in New York during the pandemic. Facebook has added 1 million square feet of Manhattan office space, and Apple added two floors in a Midtown Manhattan building.

And the surge in available commercial real estate has actually been a boon for some new businesses that have been able to find spaces at rents that are lower than they were before the pandemic.

“I’ve seen the obituary for New York City many times,” said Brian S. Waterman, the executive vice chairman of Newmark, a commercial real estate services firm. “The office reboarding will start to occur in May, June and July, and you are going to have a much fuller occupancy once we hit September.”

rally behind an idea that seemed unthinkable before the pandemic: converting distressed office buildings in Manhattan into low-income housing.

The record vacancy rate has been driven by companies across almost all industries, from media to fashion, that have discovered the advantages of remote work.

Beside the cost savings of operating a scaled-down office or no office at all, modern technology and communications have allowed workers to stay connected, collaborate from afar and be more productive without lengthy commutes. Parents are also clamoring for more flexibility to care for their children.

“We believe that we’re on top of the next change, which is the Distributed Age, where people can be more valuable in how they work, which doesn’t really matter where you spend your time,” said Alexander Westerdahl, the vice president of human resources at Spotify, the Stockholm-based streaming music giant that has 6,500 employees worldwide.

For now, Spotify does not plan to reduce its New York footprint, but as of February, the company told its United States employees — 2,100 of whom had worked at the Manhattan office — that they could work from pretty much anywhere.

“The change is mainly driven by globalization and digitalization, and our tools are much, much better at allowing for people to work from anywhere,” Mr. Westerdahl said.

Remote work, of course, is not without significant downsides.

The blurry lines that already existed between work and personal life have been all but obliterated during the pandemic. Without the time spent commuting in the morning and at night, people are logging on to work earlier in the day and staying connected later into the night.

And despite modern technology and video conferencing capabilities, companies are struggling to foster workplace cultures and make employees, especially new hires, feel welcome and part of a team.

Those concerns have weighed heavily on executives at Kelley Drye, a law firm founded in 1836 in New York, which is moving from Park Avenue near Grand Central Terminal to 3 World Trade Center in Lower Manhattan.

“Zoom and Teams are great,” said Andrea L. Calvaruso, a lawyer who is the chair of the firm’s trademark and copyright group, but she added that “there’s no substitute for sitting down in a beautiful new collaborative and working together without distractions.”

But Ms. Patellos, despite being unprepared after being stuck in California — she had to buy a keyboard and monitor — soon found herself connecting with colleagues all over the world just as she had in her New York office.

“I fell into a rhythm,” said Ms. Patellos, who is still deciding where to eventually move. “I maintained a bit of East Coast hours, starting my days a little earlier and ending a bit earlier. Before I knew it, it became the norm and a routine.”

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The Tax Headaches of Working Remotely

New Jersey, however, has said it will give its newly telecommuting residents a credit for those New York taxes for 2020, even though it is entitled to the revenue because the taxpayers are now working within its borders, Mr. Walczak said. So residents won’t, for now, have to worry about double taxation. But New Jersey estimates that it is forgoing more than $1 billion in revenue as a result — suggesting that the practice is unlikely to be sustainable in the long term, Mr. Walczak said.

How Has the Pandemic Changed Your Taxes?

Nope. The so-called economic impact payments are not treated as income. In fact, they’re technically an advance on a tax credit, known as the Recovery Rebate Credit. The payments could indirectly affect what you pay in state income taxes in a handful of states, where federal tax is deductible against state taxable income, as our colleague Ann Carrns wrote. Read more.

Mostly.  Unemployment insurance is generally subject to federal as well as state income tax, though there are exceptions (Nine states don’t impose their own income taxes, and another six exempt unemployment payments from taxation, according to the Tax Foundation). But you won’t owe so-called payroll taxes, which pay for Social Security and Medicare. The new relief bill will make the first $10,200 of benefits tax-free if your income is less than $150,000. This applies to 2020 only. (If you’ve already filed your taxes, watch for I.R.S. guidance.) Unlike paychecks from an employer, taxes for unemployment aren’t automatically withheld. Recipients must opt in — and even when they do, federal taxes are withheld only at a flat rate of 10 percent of benefits. While the new tax break will provide a cushion, some people could still owe the I.R.S. or certain states money. Read more.

Probably not, unless you’re self-employed, an independent contractor or a gig worker. The tax law overhaul of late 2019 eliminated the home office deduction for employees from 2018 through 2025. “Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home,” the I.R.S. said. Read more.

Self-employed people can take paid caregiving leave if their child’s school is closed or their usual child care provider is unavailable because of the outbreak. This works similarly to the smaller sick leave credit — 67 percent of average daily earnings (for either 2020 or 2019), up to $200 a day. But the caregiving leave can be taken for 50 days. Read more.

Yes. This year, you can deduct up to $300 for charitable contributions, even if you use the standard deduction. Previously, only people who itemized could claim these deductions. Donations must be made in cash (for these purposes, this includes check, credit card or debit card), and can’t include securities, household items or other property. For 2021, the deduction limit will double to $600 for joint filers. Rules for itemizers became more generous as well. The limit on charitable donations has been suspended, so individuals can contribute up to 100 percent of their adjusted gross income, up from 60 percent. But these donations must be made to public charities in cash; the old rules apply to contributions made to donor-advised funds, for example. Both provisions are available through 2021. Read more.

The practice of states reaching outside their borders to tax telecommuters was an issue even before the coronavirus showed up, and it is getting more attention because of a spat between New Hampshire and Massachusetts. Massachusetts said last year that it would tax the income of out-of-state residents who had worked in the state but were telecommuting during the pandemic. This miffed neighboring New Hampshire, which has thousands of residents who commute to work in Boston and other cities in Massachusetts. In October, it filed a lawsuit asking the U.S. Supreme Court to hear its complaint. (More than a dozen other states — including New Jersey — have filed briefs urging the court to consider the case.)

The workers in New Hampshire aren’t being double taxed because New Hampshire is one of nine states that have no state income tax. But New Hampshire officials object to residents being taxed by another state for work done inside its borders. (Massachusetts said in a filing in response to the suit that the policy maintains the prepandemic “status quo.”)

As remote work could remain popular even after the pandemic, federal action may be needed to make state income tax rules for telecommuting more uniform, tax experts say. A group called the Mobile Workforce Coalition says it is building bipartisan support for reform.

“Telecommuting,” Mr. Sobel said, “is going to become the norm.”

So if you worked in a state other than your usual one in 2020, how should you approach tax season?

First, make a list of any states where you worked remotely, even if it was for a brief period of time, accountants suggest. If you didn’t keep close track, try to approximate the number of days worked in each state. State laws vary, but typically income is taxed once you reach a threshold, like the amount of money earned, the number of days you worked in the state or a combination of the two. About half the states start the clock at just one day, while others use 30 or 60 days.

These sorts of rules generally apply not just to employees but also to freelancers, said Dina Pyron, global leader of the mobile tax preparation app EY TaxChat. “It doesn’t matter if you are an employee or a contractor.”

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