ESRT CEO Tony Malkin On Offices After Coronavirus And Preparing For The Next Crisis

As New York moves into its fifth week of extreme lockdown, office landlords are questioning how their businesses will function when the world moves into its new phase, however that may look.

Increasingly it seems that filling space with lots of people — the hallmark of office design over the last few years — could be a thing of the past.

“There'll be a lot of thoughts about employee density,” Empire State Realty Trust CEO Anthony Malkin said during a Bisnow webinar last week. "The WeWorks of the world, Convene [and] Industrious, they get called out for their coworking, but there are a tremendous number of tenants who have deployed benching when you have 2, 3 feet between people."

Malkin and Skanska Chief Sustainability Officer Elizabeth Heider spoke about the current crisis and how to adapt while keeping an eye on the looming threat of climate change. Both said that making sure that buildings are well-insulated, have large amounts of natural light and have equipment and furnishings that are made of safe and healthier materials will be crucial.

“[Dense offices are] not only crowded from a perspective of elbow room ... It's also crowded from the perspective of transmission of germs,” Malkin said. “I think the big factor here is going to be individuals’ spaces matter.”

The coronavirus death toll in New York — the current global epicenter of the virus — surpassed 10,000 Monday, although officials point to the slowing in hospitalizations and infection rates as hopeful signs. In a desperate bid to contain the spread, New York has been effectively closed for business since mid-March, causing extraordinary economic strain across all sectors.

Manhattan office leasing fell by nearly 50% in the first quarter following years of record-breaking activity and rents. While some are drawing comparisons to the 2008 financial crisis and the Sept. 11 terrorist attacks, many acknowledge this is an unprecedented scenario with little historical context for a guide.

There are concerns widespread economic damage will kill companies and leave office landlords without rent, and there is the practical matter of when, or if, people will feel safe returning to work.

Still, the working-from-home movement may seem like a “bright new penny," Malkin said, but he doesn't think it is likely to become the wave of the future.

“I think we're going to see … more space for individual employees,” Malkin said, adding ventilation, and heating and cooling systems, as well as a renewed focus on health and wellness, will come to the forefront. He added the current crisis should force companies to think longer term, plan for the future and focus less on short-term gains.

“If there's one thing that's coming out of this economic impact from COVID to me, it's the degree to which people have not been well-capitalized enough to prepare for the unexpected,” he said. “If you are better capitalized, you have more confidence in taking longer-term action.”

Chiefly, he pointed to a new set of laws that require many building owners in the city to reduce their emissions. Local Law 97, which came into effect last November, will impose fines on landlords if they exceed certain emission caps.

Heider agreed the swift impact of the pandemic underscores the importance of preparing buildings and business for climate change, even if it means spending some money now.

"We have more time now to flatten the impact curve for climate change than we've had for COVID, but we don't have a huge amount of time, now is the time to start planning,” she said. "If you just do things smarter with a different perspective around making wise decisions, you might be paying a little bit of incremental cost. But over the life cycle of that investment, it will more than pay back in savings.”