The conventional wisdom and negativity about the commercial real estate industry is dead wrong

BY DOUGLAS DURST

There’s a surge of doom and gloom coming from pundits about the future of New York City’s office market. Almost every day I click through stories about the industry’s “drought,” “crisis” and— my favorite new hyperbole—“doom spiral.” workers who are in three or four days a week. On any given Wednesday during the past few months, our buildings have seen 80% of their prepandemic workforce coming through the doors—with more arriving each month.

I’ve been in the business since John Lindsay was mayor. I’ve read countless postmortem headlines for our city and industry from the 1970s recession, the ’87 panic, the aftermath of 9/11, the Great Recession and now the pandemic.

And I can say with confidence that the conventional wisdom about commercial real estate today is dead wrong.

That’s almost twice as many as suggested by the wider weekly surveys you might read about in the headlines—which are dragged down by the Friday work-fromhome phenomenon and limited data sampling.

The clear takeaway is that our tenants prefer to have all, or at least a majority, of their employees in the office at the same time for purposes of collaboration, mentorship and corporate culture.

That’s a critical mass that still ensures a robust overall demand for office space.

TEnanTS PREFER TO HAVE ALL EMPLOyEES IN THE OFFICE AT THE SAME TIME

It’s true that fewer workers than before the pandemic are back five days a week, but that’s not the number that ultimately matters for the long-term health of the industry.

The metric we in commercial real estate focus on is the number of

OP-ED

Beneath the surface of the emerging weekly rhythm is the dominant trend driving fresh growth for our industry: a “flight to quality” movement.

Instead of maximizing the number of workers in a given space, tenants are increasingly upgrading their spaces and seeking offices with more amenities.

That customer shift was well underway before the pandemic, and it has been accelerated by the return to office.

Flight to quality

Flight to quality is now the driving force behind the leasing activity buoying the market’s finest office properties.

In the third quarter of last year, leasing volumes posted the stron- gest quarterly gains since 2019, and a record number of leases were signed for more than $100 per square foot in 2022.

At The Durst Organization, our net effective rents for new leases since March 2020 are higher across the commercial portfolio compared with the two and a half years before the pandemic. Vacancy is down compared with prepandemic figures at some of our top-tier prop- erties including 151 W. 42nd St., 1155 Sixth Ave. and 1 World Trade Center.

Remote work continues to be a part of the toolkit for employers, but just as schools discovered remote learning’s limitations and pivoted back to in-person instruction, employers are recognizing the importance of their office space.

Yes, there’s real pressure on owners of Class B and C office buildings to upgrade their spaces, innovate a fresh story, attract different kinds of tenants or consider converting offices to residential use to meet shifting preferences in the market.

Those trends were well underway a decade ago, and many owners were already responding before the pandemic by making new investments or repositioning their assets.

Change is the only constant in our business, and as long as I’ve been around, there’s never been a time in the commercial office market where we’ve had the luxury of standing still.

The pundits might see clouds on the horizon, but I see the future of commercial real estate in New York coming into focus. And I like what I see. ■