RXR CEO Says Office Slowdown Due to Economy, Not Remote Work

RXR Realty, one of the largest office building owners in New York City, in early February became ready to take some extreme steps. For example, the company plans to end debt payments on some of its older Manhattan properties and “give the keys back to the bank.”

More recently, though, company CEO and Chairman Scott Rechler said that it has everything to do with the economy and no tie at all to people working from home. As a result, in theory companies would need less office real estate and reduce their holdings.

“Mr. Rechler believes that hybrid work is here to stay and will have some minor negative impact on office demand; however, he noted that return to office mandates and rising office utilization are potential bright spots that suggest tenants still value the office as a crucial place to do business,” said Green Street in a summary of a conference call with the executive.

“When you have to share a desk, you don’t have your own space, you’re going from the comfort of working at home in a place that feels like your own to then going to a place that you feel like you’re a transient in someone’s desk versus your own desk or your own space,” Rechler said. “To me, it feels like that’s not a long-term solution. I think that the companies that we speak to really want to invest on bringing people back to space that is compelling.”

Later in the conversation with Green Street’s office sector head Dylan Burzinski, the CEO said, “I would say right now this is driven by the economic uncertainty and the pullback of, again, the excess space that was taken by some companies that now need to revert back, which is really more, I think, on the tech side than anything else on that side of the equation.”

“I’m still a believer at the end of the day that, as I said, I believe in hybrid work, but I don’t believe hybrid work is going to result in that much less space,” Rechler added. “There’s going to be some less space, but not that much less space, because the space that’s being built today is being built where people, in most cases, want to give people more space to work in, they want to create amenity spaces for people to come and collaborate together in.”

In at least one sense he is right. If companies push to have employees back some minimum number of days per week and if most employees choose to be present in the office on roughly the same days, companies may need the same amount of real estate. They have to plan for peak capacity, not average.

It’s also good to remember that not renting enough space in a building to make it in a cycle is essentially an economic issue.