In the past few months, it has become clear that COVID-19 will have far-reaching consequences that will outpace vaccination. While many continue to deal with the ongoing multifarious disaster that is COVID-19, a select few are warning that what’s happening now could trigger a financial crisis on a scale larger than the one we are currently facing.

“This is the first moment when I seriously worry about the city’s place — economically, culturally, socially — because the social fabric of the city is being torn apart.” [1] That’s former New York Governor, Eliot Spitzer on the impact of COVID-19 on NYC. The few who currently share Spitzer’s sense of alarm are urging that a concerted effort to cushion NYC’s economy should already be underway. Among these few is Jeff Blau, CEO of Related, one of the primary developers of Hudson Yards. Blau has argued that companies have a “civic responsibility” to return to their offices so that the “economic ecosystem” can fully recover. [2] Spitzer, who also supports the return, is most concerned about the future of the office real estate market, a pivotal part of NYC’s economy. “If there’s a 10 percent drop in office demand, it’s going to ripple through the market in a very real way,” he explains in an interview for Curbed Magazine. 

The concern that the unexpected consequences of social distancing will prompt market collapse is by no means a new one. It was raised early on as an argument against distancing measures and later, in earnest, when the market fell significantly. Though, now, the market appears relatively stable. In fact, some have even suggested that the new normal will actually improve the economy and our satisfaction with work in the long run. Considering this, it might be easy to write off Blau’s and Spitzer’s concern as alarmist, especially considering the fact that their markets are the ones facing losses. 

However, there is some merit to their concern. Repopulating office space will likely ensure that demand does not fall below a certain threshold, preventing serious market losses. Though, attempting to break even is not a winning strategy; and, it certainly is not Blau’s or Spitzer’s. What they’re betting on is growth: a term often used to describe expansion, development, and increased investment in commercial aparti. For them, growth — in the form of new developments which, of course, will have to be populated by rent-paying tenants — offers a tried and true model for economic recovery. 

In fact, growth has always been NYC’s recovery model. In past crises, NYC has offered large subsidies to developers in hopes of “reviving” areas like Times Square and the World Trade Center. [1] Hudson Yards — which had been in development over the last two decades — received hundreds of millions from the city to ensure that it would be completed despite the 2008 financial crisis. “If you believe that growth is good,” Spitzer explains, then “Hudson Yards is spectacular.” [1]

However, COVID-19 is checking this belief; and it isn’t alone. A burgeoning progressive movement in NY governance is urging the city to reconsider its current growth model. In their opinion, another high profile development like Hudson Yards simply will not work. They point to the fact that ground floor tenant, Neiman Marcus, filed for bankruptcy and quit its 50 year lease within a year of signing as evidence that the old growth model is outdated. 

Their opinion is reflected in the numbers. Malls everywhere are emptying out. Online shopping is at an all time high and rising. The open office space is capturing the millennial zeitgeist’s attention, and companies like WeWork are facilitating the new boom of the tech industry. So, certainly, erecting dense spaces for work and commerce will be pointless and costly if remote means continue to remain the preferred choice. 

In any case, the market will have to adapt to new demands, and is already appearing to do so. Developers in the outer boroughs and in the greater tri-state have been working tirelessly to create office environments that can draw those fleeing Midtown. For them, it isn’t a matter of reviving Midtown but of restructuring NYC to accommodate a new growth model — one which takes into account the need for space, the change of pace, and the reality that remote work is here to stay.

Ultimately, the way recovery unfolds will be determined by the way COVID-19 is contained and the way companies decide to proceed. Matters of safety, cost, and productivity could sway companies towards restructuring in a way that would bode well for proponents and functionaries of the new growth model. However, as large companies like Goldman Sachs and Bloomberg attempt to draw their workers back with safer working conditions and better perks, there is hope for the old growth model still. 

Sources:

[1] – Rice, Andrew, “The Panic Attack of the Power Brokers,” Curbed: New York Magazine, 13 Oct. 2020, https://www.curbed.com/2020/10/future-of-real-estate-nyc.html?utm_campaign=nym&utm_medium=s1&utm_source=tw, accessed 11 Nov. 2020.

[2] – Blau, Jeff, “It’s Time to Open New York’s Offices,” Wall Street Journal, 25 Aug. 2020, https://www.wsj.com/articles/its-time-to-open-new-yorks-offices-11598393805, accessed 11 Nov. 2020.