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Are people going back to the office in NYC?

Are people going back to the office in NYC?

Real Estate

Are people going back to the office in NYC?

Since the onset of the pandemic, many employers have shifted to remote work. Originally out of necessity, remote work quickly gained steam as the preferred location-of-choice for many Americans. 

Recent trends, however, suggest that the era of remote work might be coming to an end. An anonymous office landlord we interviewed indicated that occupancy rates have been “slowly rising every week.” In fact, after the announcement of a large layoff of a tenant, that particular tenant witnessed an occupancy rate increase to 75% the next day. 

The landlord also mentioned that west coast businesses were slower to return to the office than their east coast counterparts. “Kastle Systems, which uses keycard, fob, and app access data to determine weekly office tenant occupancy rates for 10 U.S. metropolitan areas, found that as of the week of March 1, 2023 (the most recent data available), the 10-metro average occupancy rate was 50.1%.” Moreover, “Austin had the highest occupancy at 68.1%, while San Jose had the lowest at 40.6%.”

However, to our surprise, we found that startups tend to come to office 5 days a week, while financial services firms work 4-5 days a week. Perhaps when you need to succeed, work-from-home needs appear to vanish!

This landlord also pointed to higher NYC subway ridership to explain the rising occupancy rates. As subways are the primary form of transportation, Governor Hochul Recently Announced New York City Subway Sets Ridership Record on March 16

We spoke with one Private Equity partner who said he only came in 3 days per week; however, his firm wanted a larger footprint, as a result of everyone not wanting to share desks! 

Looking back at the 1980s and early 1990s, the U.S. experienced a significant real estate downturn, which resulted in high office vacancy rates in many cities across the country. During this period, vacancy rates peaked at around 20% in some areas.

Following this period of decline, the U.S. office market began to recover in the mid-1990s. By the early 2000s, vacancy rates had fallen to around 10%, which was considered a healthy level for the market. However, the global financial crisis of 2008 led to another downturn in the real estate market, and office vacancy rates once again rose in many areas.

Will a recession lower home prices?

In recent years, the U.S. office market became relatively strong, with vacancy rates hovering around 10% in many cities. However, the COVID-19 pandemic has had a significant impact on the office market, with many companies shifting to remote work arrangements and leaving their office space vacant. 

Before the pandemic, it was common for offices to have an average attendance rate of around 70% to 80%, with some companies having higher or lower rates depending on their specific needs and policies. 

Is The US Real Estate Market In Free Fall?

In the past two years, we have seen irrational and unsustainable interest in the U.S. housing market.

Motivated by the double expansionary fiscal and monetary policy, the demand for purchases of residents housing has risen rapidly. Since the Fed hiked interest rates for the first time in three years in March 2022, interest rates have quickly spiked in just over four months, raising the target rate of the federal funds from 0%-0.25% to a range of 2.25%-2.50%.

Is the US housing market in free fall with the federal’s aggressive push on interest rates?

We spoke with one brilliant Real Estate mind, Urban Standard Capital’s Managing Partner Seth Weissman, who told us:

Seth Weissman
“I think different asset types/locations will be impacted differently. However, there is a definite reset in valuations, in some cases significantly 15-30%. If you can buy 10 year treasuries ~4%, it makes it hard to justify paying 4% caps…so what is the appropriate spread?” 

According to the survey data released by Freddie Mac, on September 15, the US 30-year fixed rate mortgage rate was 6.02%, much higher than the 2.86% in the same period last year and the highest level since November 2008. “Mortgage rates increased for the seventh consecutive week, as Treasury yields continued to rise.”

A quote from Sam Khater, Freddie Mac’s Chief Economist also went on to say:

“While springtime is typically the busiest homebuying season, the upswing in rates has caused some volatility in demand. It continues to be a seller’s market, but buyers who remain interested in purchasing a home may find that competition has moderately softened.”

As mortgage rates rise with sky-high home prices, affordability approaches its upper bounds of history. But is this really the doom for the housing market? In fact, it is understandable why the Fed may be hesitant to stop the ongoing housing correction—the housing price boom is one of the biggest culprits of pandemic inflation. “Our results provide suggestive evidence that house price growth has been an important contributor to inflation during the pandemic…A back-of-the-envelope calculation based on our regression estimates suggests that house price growth could explain about 1/3 of the increase in the consumer price index (CPI) excluding housing services between February 2020 and February 2022”. According to Federal Reserve economists in a paper published in November.

Using monetary policy to limit the housing market could not only prevent sky-high home prices spill over into rents but also help the Fed to take control on runaway inflations. 

For decades the Case-Shiller National Home Price Index reported positive home price growth; that is, until June 2022, after which we witnessed four consecutive months of U.S. home prices declining. As the index indicates, US home prices are down 2.4% compared with June, which takes us back to the home price levels of March 2022. While US home prices are falling, they are going up rapidly over the past three years and still far from underlying fundamentals. For instance, October 2022 home prices are about 38% higher than levels of March 2020. If you take this into consideration, 2.4% deflation of home prices seems stable and far from free fall. 

A slowdown in the housing sector could be a drag on GDP. However, this stagnation of price surging indicates no systematic risk. Unlike the financial crisis, homebuyers in recent years tend to have higher credit scores and are more likely to lock in a fixed mortgage rate. More importantly, a large housing price correction today wouldn’t see as many householders going for default (e.g., amortized mortgage balance being greater than house value). 

Collectively, it is more likely that the US housing market remains well-controlled than in a free fall. 

Will a recession lower home prices?

Is The US Real Estate Market In Free Fall?

We spoke with one brilliant Real Estate mind, Urban Standard Capital’s Managing Partner Seth Weissman, who told us:

“I think different asset types/locations will be impacted differently, however, there is a definite reset in valuations. In some cases significantly 15-30%. If you can buy 10 year treasuries ~4%, makes it hard to justify paying 4% caps…so what is the appropriate spread?” 

According to the survey data released by Freddie Mac, on September 15 the US 30-year fixed rate mortgage rate was 6.02%, much higher than the 2.86% in the same period last year, also reaching the highest level since November 2008. “Mortgage rates increased for the seventh consecutive week, as Treasury yields continued to rise.”

A quote from Sam Khater, Freddie Mac’s Chief Economist, who also went on to say:

“While springtime is typically the busiest homebuying season, the upswing in rates has caused some volatility in demand. It continues to be a seller’s market, but buyers who remain interested in purchasing a home may find that competition has moderately softened.”

As mortgage rates rise with sky-high home prices, affordability approaches its upper bounds of history. But is this really the doom for the housing market? In fact, it is understandable why the Fed may be hesitant to stop the ongoing housing correction—the housing price boom is one of the biggest culprits of pandemic inflation. “Our results provide suggestive evidence that house price growth has been an important contributor to inflation during the pandemic…A back-of-the-envelope calculation based on our regression estimates suggests that house price growth could explain about 1/3 of the increase in the consumer price index (CPI) excluding housing services between February 2020 and February 2022”. According to Federal Reserve economists in a paper published in November.

Using monetary policy to limit the housing market could not only prevent sky-high home prices spill over into rents but also help the Fed to take control on runaway inflations. 

For decades the Case-Shiller National Home Price Index reported positive home price growth; that is, until June 2022, after which we witnessed four consecutive months of U.S. home prices declining. As the index indicates, US home prices are down 2.4% compared with June, which takes us back to the home price levels of March 2022. While US home prices are falling, they are going up rapidly over the past three years and still far from underlying fundamentals. For instance, October 2022 home prices are about 38% higher than levels of March 2020. If you take this into consideration, 2.4% deflation of home prices seems stable and far from free fall. 

A slowdown in the housing sector could be a drag on GDP. However, in this writer’s opinion, this stagnation of price surging indicates no systematic risk. Unlike in the financial crisis, homebuyers in recent years tend to have higher credit scores. And are more likely to lock in a fixed mortgage rate. More importantly a large housing price correction today wouldn’t see as many householders going for default. (e.g., Amortized mortgage balance being greater than house value) 

In conclusion, it’s more likely the US housing market remains well controlled rather than in a free fall.

Written by YueYue Ma & Edited by Avhan Misra

What is office vacancy rate in NYC?

Office Vacancies Hit Record as Employees Work from Home (investopedia.com)

Manhattan Office Vacancy Rate Hits Record High as Leasing Still Struggles – Commercial Observer

New York’s Office Vacancy Rate Hits Record High as Troubling Signs Stack Up (costar.com)

Manhattan’s Office Market Continued to Decline in 2022 (therealdeal.com)

Are people going back to the office in NYC?