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Declining need for office space could crush homeowners after pandemic

About 17.3% of all office space in Manhattan is available for rent, the highest proportion in at least three decades. Asking rents on the island have fallen to just over $ 74 per square foot, from nearly $ 82 at the start of 2020, according to a recent report from real estate services firm Newmark. Elsewhere, asking rents were largely flat from a year ago, including in Boston and Houston, but edged up in Chicago.

Japanese clothing brand Uniqlo, headquartered in the United States in Manhattan’s SoHo neighborhood, recently moved to another nearby office building, an open layout with tables designed for its workforce. 130 people who will only come to the office a few days a week. Many of its office workers will continue to work remotely after the pandemic, while some employees, such as those in the marketing department, will meet occasionally in SoHo.

“As a leader it has been a challenge because it is so important to meet people face to face,” said Daisuke Tsukagoshi, General Manager of Uniqlo USA. “However, since we are a Japanese company with a global reach, the need for remote collaboration between many centers has always been part of our culture.”

Large homeowner stock prices, which are often structured like real estate investment trusts that transfer almost all of their profits to investors, are trading well below their previous highs, even though the broader stock market and some companies in other sectors like airlines and hotels that have been hit hard by the pandemic have reached new heights. Shares of Boston Properties, one of the largest office owners, are down 29% from the pre-pandemic high. SL Green, one of New York’s top owners, is 26 percent less.

Fitch Ratings estimated that profits for office owners would drop 15% if companies allowed workers to stay in their homes an average of 1.5 days a week. Three days at home could reduce income by 30%.

Senior executives at real estate companies say they are not worried. They said working from home will quickly disappear once most of the country is vaccinated. Their reasons for thinking this? They say many business leaders have told them it is difficult to effectively get workers to collaborate or train young professionals when they are not together.

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