Why Only 10-15 Percent Of NY and SF Workers Are Back To Offices

Form follows function - and so does behavioral economics.

Tech, media, law and finance professionals can more easily work remotely than others, and those occupations dominate white collar work in New York and San Francisco. That those cities also rely more on public transportation and have more high rise office towers than many others - about which the workforce are still leery - is another disincentive. Until there is greater motivation driven by necessity, this is likely to continue. JL

Peter Grant and Emma Tucker report in the Wall Street Journal:

10% of Manhattan office workers were back as of Sept. 18. That represents only a modest uptick from the 6% to 8% who were back in July. San Francisco is also struggling, with office occupancy in the 15% range. Nationally, 25% of office workers have returned as of this month; Dallas is at 40% and Los Angeles at 32%. Tech companies have been among the slowest to return to the office. Reliance on mass transit has kept many people working from home. Cities that have more driving commuters have seen (more) workers return.

Manhattan office employees are returning to work at a much slower pace than those in most other major U.S. cities, raising the risk that New York faces a more protracted and painful recovery from the coronavirus pandemic than much of the rest of the country.

Wall Street bankers have been trickling back to their glass towers, while real-estate firms have tried to set an example by encouraging staff to return in force. But most of the city’s lawyers, media and publishing employees, tech industry workers and others have stayed away, real-estate brokers say.

Overall, about 10% of Manhattan office workers were back as of Sept. 18, according to CBRE Group Inc., a commercial real estate services firm.

That represents only a modest uptick from the 6% to 8% who were back in July, a month after the city allowed nonessential workers to return for the first time since offices closed in March because of the pandemic. The monthslong stretch of near-empty office buildings has had a debilitating knock-on effect in Midtown Manhattan and other business districts, leading many small shops and restaurants to shut down for good.

Nationally, about 25% of office workers have returned as of this month, on average, according to real-estate services firms. Some large metropolitan areas are considerably higher, such as Dallas at 40% and the Los Angeles metro area at 32%, industry professionals say. The reoccupation rate in New York’s suburbs is 32%, according to CBRE, which manages 20 million square feet of office property in the region.

The tech-heavy San Francisco region is also struggling, with office occupancy in the 15% range. Technology companies, which are more used to remote work than other businesses, have been among the slowest to return to the office. Some like Facebook Inc. and Twitter Inc. have announced plans to extend work from home well into the future.

The low rate in New York has disappointed city officials, who had been counting on more people returning to work after Labor Day. Many private schools reopened earlier this month and a number of New York families came back after leaving the city over the summer.

While New York City struggled to contain the virus in early spring, it now has a much lower per capita rate of new Covid-19 infections than in many cities where a higher percentage of the workforce is back at their desks.

“We all expected [the re-occupancy rate] to be closer to 20% to 25%, which is what’s happening around the rest of the U.S.,” said Mary Ann Tighe, CBRE’s chief executive of the New York region.

But a number of civic and business leaders say New York’s reliance on mass transit—and concerns that the new coronavirus could spread through subways, buses or regional trains—has kept many people working from home. Cities that have more driving commuters have seen a higher percentage of workers return.

Some also say that delays in New York public schools’ reopening has made parents reluctant to return to the office if it means leaving children at home alone.While most front-line New York City employees have returned to work, Mayor Bill de Blasio hasn’t announced plans to bring back thousands of the city’s white-collar workforce, further depressing office turnout. “We’ll continue to release updated guidance to city workers as we move forward to an eventual full return,” a spokesman for the mayor said.

New Yorkers’ slow return to the workplace is the latest blow to the nation’s biggest city, which has also suffered from homeowners fleeing Manhattan for larger spaces, rises in murders and homelessness, and the shutting or partial closings of Broadway theaters, museums and other popular attractions.

The dearth of employees at their desks could also have long-term consequences for the city’s economy and tax base. The Metropolitan Transportation Authority, which relies heavily on commuter revenue, faces a $12 billion shortfall by the end of 2021 and is considering crippling service cuts. Manhattan’s low office turnout also has contributed to a $9 billion drop in sales tax and other revenue the city government is projecting for its fiscal year that started July 1.

About two million people worked daily in Manhattan’s central office districts before the pandemic, mostly white-collar workers but also employees of bars, restaurants, stores and other businesses. A number of once-thriving outlets that depend on office workers for business have already called it quits. That has helped push the city’s unemployment rate during the summer to 20%, the highest rate in more than 40 years.

Café Metro, a quick-service restaurant down the block from the MetLife building in Midtown, is closing early next month. On Thursday at the start of lunchtime, the previously bustling restaurant was nearly empty with just one dining customer and another placing an order.

“Ninety percent of our revenue depends on office workers and another 10% depends on tourists,” said Edison Castillo, the eatery’s manager. “We have lost both ways. I used to have 55 employees between both morning and night shifts. Right now we are down to six.”

Kamakura Shirts, a high-end Japanese dress-shirt store located blocks away from Grand Central Terminal, said it is closing at the end of this year. Kakeru Kitatsuru, the store’s manager, said that sales have dropped as much as 70% since mid-March.

“Because we’re located on Madison Avenue, a lot of the workers around here are our customers,” he said.

New York’s business and civic leaders say they don’t expect a surge of workers returning soon, but some are hopeful that momentum is building. Public schools are starting to reopen after previous delays, and partial indoor dining resumes this week. The city’s shopping malls and gyms also recently opened their doors again.

Still, legal considerations remain an issue, and not just in New York. Business owners feel exposed to employee lawsuits if they require workers to return and some get infected.

“Businesses are not able to force their employees to do anything in this situation,” said Kathryn Wylde, chief executive of the Partnership for New York City business organization. “Or they do so at their peril.”

JPMorgan Chase & Co. is an exception. This month, the bank told senior sales and trading employees that they were required to return to work unless they had child-care issues or medical conditions. About 25% of the bank’s New York City employees are reporting each day.

About 25% of JPMorgan Chase’s New York City employees are reporting each day.

PHOTO: MICHAEL NAGLE/BLOOMBERG NEWS

More common has been businesses offering the option of coming back. Citigroup Inc. said it would allow more employees to return on a voluntary basis.

A Citi spokeswoman said that 30% of New York employees indicated on a survey that they would like to return to the workplace. That level is safe and brings enough people into the office “to create a good buzz,” she said. Still, only 5% of its Manhattan workforce has returned, the bank said.

Deutsche Bank AG told New York City employees they don’t have to return until July.

Some businesses are trying to lure employees back with free food, transportation or other incentives. Citi is providing 40 days of subsidized child care, nanny placement services and help for employees looking for a caregiver to supervise online learning. Hearst Corp.’s benefits include free parking in the city and additional child-care reimbursement.

But for some New Yorkers who recall the early weeks of the pandemic, when the rates of sickness and death were among the highest in the world, complimentary parking might not be enough to bring them back to midtown and the prospect of mixing with crowds. Many were traumatized, said Chris Jones, senior vice president of the Regional Plan Association, an urban policy organization.

“There were sirens blaring every night,” he said. “That’s had a psychological impact.”