August 6, 2021
By Cathy Cunningham
The words “Labor Day” have been almost inextricably linked to “back to work” since the spring.
Why the business world seemed to settle on this target date is still somewhat of a mystery. But the Tuesday after Labor Day had become the broadly planned “return to office” day for so many companies, an anticipated V-E Day for our own war, in which we all fought and so many perished.
At the time Commercial Observer was going to print, the variant accounted for more than 93 percent of all new COVID-19 cases in the U.S., according to Centers for Disease Control and Prevention data, fueling a massive pandemic resurgence. And, it’s not the only mutation of the coronavirus on the world’s radar. Concerns are now swirling around the lambda and epsilon variants, which — per early studies — have shown resistance to vaccines.
It seems that COVID-19 is, therefore, far from over, and its pernicious variants will be part of our lives for the foreseeable future, with all the best-laid plans seemingly upended. So, what does this all mean for return-to-office plans?
“Everyone believed the vaccine was the best defense against mitigating the virus or reducing its risk,” said Joanna Frank, president and CEO of the Center for Active Design (CfAD). “So, the last week or two has really undermined people’s confidence. It’s as much a mental health issue as it is the physical health issue, in that, we were all relying on the vaccine and all of the physical changes made to buildings. But, now, folks are feeling that we don’t necessarily have the solution, that the risk is something that we’re going to have to deal with in the longer term, and that we can’t just go back to the way things were before.”
Frank, who works with several real estate owners, investors and tenants in certifying their buildings and spaces as safe and healthy for occupants, said many firms are now targeting January for a return to office in light of the variants. “There’s no simple solution, and things are changing very rapidly,” she said.
Amazon is one such company, pushing back its return date from September to January 2022 — at the earliest — citing COVID-19 surge concerns. It follows fellow tech behemoths Apple and Google in moving the goal post from early September.
“What we’re seeing on the real estate owner or investor side is that the uncertainty is really difficult for business,” Frank said. “They don’t know how to plan. You can do everything necessary within your buildings, but you can’t control these other wider issues. That kind of uncertainty is really tough.”
Indeed, the delta variant “has changed the landscape, without a doubt,” said Paul Gaines, chief asset officer at Accesso, an owner and operator of office and multifamily properties across the U.S. “We were hearing that most tenants were targeting Labor Day as a return to office, but now we’re trying to find out if that still holds true.”
As a firm that’s active in several markets — including Minneapolis, Chicago, Philadelphia, Houston, Dallas, Austin, Atlanta, and the Carolinas — Gaines said tenants’ answers depend largely on where his assets are located. “We’re getting different feedback,” he said. “In some of the Southern states, the vaccine levels are so low that there’s the concern that you have too many unvaccinated people in the office. In some of the Northern cities or Midwestern cities, we have higher vaccination rates, although we’re now learning that even vaccinated people are coming down with COVID.”
Insistence on vaccination is one area where real estate companies have taken it upon themselves to be proactive. Earlier this summer, The Durst Organization said that any employees who were unvaccinated (except for medical or religious issues) would be fired. This week, Related Companies followed suit.
And a growing number of non-real estate companies have likewise refused to brook dissent when it comes to vaccinations. CNN fired three unvaccinated workers this week. And, in a letter to employees on Friday, United Airlines announced that it was mandating that all of its employees be vaccinated. New York restaurateur Danny Meyer has said that not only must all the staff at his restaurants be vaccinated, he has insisted that his customers be vaccinated, too. (Although, with Meyer’s biggest cash cow, Shake Shack, he demurred.)
From the start of the pandemic, Accesso has prioritized a safe environment for its tenants, communicating closely with them along the way. “We had slowly started to open everything back up again, according to the guidance from local jurisdictions,” Gaines said. “We took out some of the mandated mask-wearing, but kept the signs up suggesting that, while you’re in the common areas, be considerate of other people in the building and wear a mask. But — just like everywhere else — some people comply and some people don’t.”
For Gaines, who is in the office three days a week, his personal risk is now elevated with the new variant. “I’m in the higher risk category, and I’m starting to think about going back to working from home for a while,” he said. “I’m not comfortable when I see people without masks on. And I think a lot of tenants have that same issue. We’ve put in all the systems and have taken every precaution possible. We started relaxing some protocols, but I think we’re going to start putting them back in.”
Ten minutes prior to speaking with CO, Gaines, who was masked, walked down the hall of his office and ran into three people not wearing masks. “It’s hard to control,” he said. “But I think this variant is going to change people’s minds, I really do. We may go back to mandating a mask in the common areas in certain markets. Some of our tenants are asking for it, and we’re very tenant-oriented.”
A return to office amid COVID cases spiking again will vary depending on the asset’s urban or suburban location, Gaines said.
“My Downtown Chicago assets are heavily dependent upon mass transit,” Gaines said. “The highways are still very crowded, because people are not getting on mass transit the way we thought they would by now, and I really think this variant is going to slow down the ability for people to get back on mass transit.”
Gaines doubts that people will be inclined “to sit on a train for 40 minutes from the Chicago suburbs, or on a subway train. I have a feeling that our Chicago market may be a slower return. Our suburban assets — on the other hand — people will drive to, and they’re usually low-rise buildings versus high-rise. So, it’s either one or two stops on an elevator, or no elevator because you can walk up a flight of stairs. I think the suburban properties are going to see a faster return than the downtown high-rises that are going to require mass transit.”
“Three weeks ago, I would have said, ‘Come Labor Day, we’re going to see a big influx of people,’ because the buildings that we were averaging 10 or 15 percent occupancy in had gotten up to 35 to 45 percent, with some at 70 percent occupancy. I have a feeling that’s going to roll back a little bit. People are just not going to [go into the office].”
Gaines has real-time information on the situation in his hometown of Atlanta. “I happen to have a neighbor who is a COVID ICU nurse here,” he said. “She told me yesterday that their hospital beds are full again, and she got called into work at one o’clock in the morning the other day, because they needed more staff. She said it’s worse now than it was when it started.”
Like so many others, Gaines also knows people who have contracted the virus post-vaccination, including a family member. He also noted that the pitcher for one of his favorite baseball teams wasn’t pitching that night, as he tested positive while fully vaccinated.
“You’re hearing more and more people that are coming down with it, even if they’ve been fully vaccinated,” he said.
In New York, a similar sentiment pervades.
“The delta variant is worrying for all of us,” said Francis Greenburger, chairman of Time Equities. “It’s obviously more significant in certain regions and has to be assessed location by location, but we’re certainly concerned about it.”
Time Equities’ employees are currently working a three-days-in-the-office schedule. The firm isn’t mandating its employees be vaccinated like others are, such as Related and Durst, but unvaccinated staff have to test once a week for the virus, report results and wear masks in the office.
“We’re strongly encouraging people to get the vaccine, but we can’t compel them,” Greenburger said. “We even offer the vaccine on our own premises, and are doing everything we can to encourage people to get vaccinated.”
Greenburger has resumed his normal travel schedule, emboldened by his fully vaccinated status. He spoke with CO from Europe and was in Chicago only two weeks ago. “I don’t expect to change my travel patterns, unless I’m going to be somewhere that has a very high incidence. Then, I’ll be more cautious.”
“I think the greatest concern here is the unvaccinated,” Greenburger said. “But the world is saying louder and louder: ‘[Being vaccinated] is something that everybody has to do together, and if you’re not going to do it, we can’t protect you.’ We’re in clear and present danger, regardless of whatever speculative concerns that people have about long-term effects of the vaccine. Quite honestly, they’re choosing that remote chance over protecting themselves, their families and the people they love today.”
Despite all the uncertainty that this new permutation of the virus raises, the larger market forces still seem to be convinced that it’s a blip. For Time Equities, leasing velocity has picked up recently within its portfolio, despite the concerns around the delta variant.
“I remember the day when we shut down everything — March 13 — very well,” said Brian Soto, director of acquisitions and asset management at Time Equities. Soto manages the firm’s New York office holdings plus an additional 6 million square feet in 15 states. “I remember having to get on the phone with all of our management team and ask, ‘OK, what are you doing to keep the buildings operating?’ because we have [General Services Administration] tenants, we have essential workers, and we had to keep our buildings open. Things were tough, but things have progressed since then. Our leasing velocity has increased in New York City and throughout the country, and I’m glad to say [that] I just signed 10,000 square feet of new leasing at 55 Fifth Avenue, and I have a lease out for 22,000 square feet, too.”
Two tenants were vying for that 22,000-square-foot office space, Greenburger said. “They both wanted the floor and it’s pretty astonishing for us to see two companies competing for the same office space today,” he said.
Soto said that some of Time Equities’ tenants have said they’re giving employees until the end of the summer to return, while others are waiting things out until the end of the year to see how the virus plays out.
“It’s an eclectic mix of thought processes,” Soto said. “”And, then, of course, we have our essential workers and government tenants who have no choice but to come to work, and a lot of the unions are in the same situation. Our portfolio runs the gamut in terms of tenancy, but there’s definitely a move for people to be back in the office.”
Soto said that he feels several states are going backward in the fight to eradicate COVID-19, but is “very happy that New York has put its foot down. Our leaders have said, ‘People need to get vaccinated or they’re not going to be able to participate in life as they normally would pre-pandemic,’ which I think is best for the health and safety of everyone.”
After returning from a recent trip to Florida and Virginia, “I had masks on going into stores and I was looked at as though I had three heads,” he said.
On a positive note for Soto’s business and the general comfort with the pandemic’s protracted timeline, he was, for a while, only answering questions from potential tenants about the COVID-19 protocols that Time Equities had in place in its buildings. “Today, we’re being asked, ‘Do you have any outdoor space? Do you have a gym facility on-site?’ again, instead.”
Tom Vecchione, principal of architect and design firm Vocon, said we’ll need to wait a little longer to see the full velocity of the delta variant before owners pivot on any long-term plans.
“Because this is pretty new in New York, companies haven’t shifted gears yet,” he said. “Some have delayed openings, but the project work that we’re doing in terms of making buildings more amenitized and more comfortable, and thinking about workplaces as work centers where people will return to a different routine, hasn’t changed. The big projects, and the thinking we’ve been doing with both enterprise clients and building owners, is still on course.”
Vecchione has been most intrigued by the systemic shift he’s witnessed. “There’s a systemic change in the workweek, from post-World War II’s ‘nine-to-five, five days a week, 40 hours a week’ to companies across the board becoming comfortable with a three-plus-two, on-site/off-site model.”
From clients, he’s hearing “a lot of concerns [about the variant], but there’s also lots of ideation,” he said. “Challenges mean problem-solving, and people have risen to the occasion. One key theme is creating places of choice. I work with a lot of building owners and — because it’s such a competitive landscape, and because people are debating whether to come back — companies don’t know how to best invest in their office space. So, it’s really important, as the building owner, to assess the cultural and performance values of the building, and the neighborhood and the place — what’s unique, and what’s going to spark the imagination of someone who’s willing to think about coming back or having to come back.”
Vecchione also pointed to a dramatic shift in New York City’s attitude toward gathering together and busy spaces.
“Think about the phrases: ‘We’ve a packed house tonight!’ or ‘The restaurant is fully booked!’ There’s a different connotation with that now,” he said. “What are the long-lasting effects of this pandemic, and how does New York — being the most dense, urban city — evolve with more greenery or the greening of buildings? All these interesting, subtle influences are starting to shape the city overall.”
While building owners in New York City and across the U.S. craft their response to the delta variant, CfAD has also updated its viral response module — its certification specific to COVID-19 — following the broader module’s initial rollout last September. The new version includes an expanded set of recommendations that allow for the ever-changing environment.
Protocols kick in when a city is in a state of emergency, or at a higher level of risk, and are downgraded when it’s no longer within that “high risk” designation.
“It’s really about using those larger triggers and larger messaging that’s happening either federally, or state- or citywide, and the protocols that are associated with being at these different phases,” Frank said. “You don’t want people to be wearing masks when there’s a lower risk, and you want to pace your response to the risk, otherwise people get burned out. So, you need to be gauging your response to the level of threat, so that it feels valid when it changes and — for example — masks are mandatory again.”
Another reason, separate from health implications, to recalibrate a response depending on risk level is concerns around how much energy is being used in healthy building protocols.
“We don’t want to run all the way in one direction, and then realize, ‘Oh, look — we’ve just used X amount of times more energy, which is then going to affect the carbon footprint of our buildings and its sustainability,’” Frank said. “But, this is going to have to be the new mindset: When we’re in a high-risk situation, our behavior has to change and our buildings will be run in different ways. Then, when the risk diminishes, we can go back to a different level and just keep recalibrating to meet the present risk.”
Frank noted other concerns around employee retention as owners struggle to walk the fine line between safety and productivity. “Some financial service companies — I shan’t name them— have said that folks must come back into the office, and have then seen a backlash where people have left. So, I think that that has also been a really cautionary tale to other businesses in a tight labor market. Employees have a real voice in what’s going on.”
As the COVID-19 pandemic rages on, with its many variants creating the next iteration of its trail of destruction, Frank is curious about office owners’ and tenants’ future risk tolerance for the virus.
“People used to get the flu, but one case of flu wouldn’t shut down an office,” she said. “Understanding that COVID is a completely different virus and has wildly different health impacts, it’s going to be interesting to see what our tolerance is for this as a risk going forward. Will a single case shut a whole building down going forward, or are we eventually going to have a different tolerance for the risk of exposure to COVID?”
For now, “I have my hand sanitizer, I don’t touch my face, I keep my mask on, and I just follow the protocols that Dr. Fauci gives me,” Soto said. “These are the things we can do to keep ourselves safe.”
Cathy Cunningham can be reached at email@example.com.