When Michael Giuttari returned in late June to his office at MG Commercial Real Estate Services Inc. in the Jewelry District of Providence, he found a changed landscape.
His go-to spot for work lunches, The District, wasn’t open for lunch anymore. The popular eatery used to be so packed, diners needed reservations. Now it’s only open for dinner. The lunch crowds, which had been made up of mostly office workers, are gone.
For commuters, the daily trek has gotten much easier. And parking lots at work are sparsely filled. It’s become obvious to anyone who passes a suburban office center or a downtown
skyscraper that throngs of people who used to spend their workdays at the office are still at home.
Indeed, demand for office space has evaporated since the start of the COVID-19 pandemic in March, when workplaces closed and people started working remotely en masse to slow the spread of the virus. Commercial brokers say it’s as if someone hit a pause button.
“People are nervous,” said Giuttari, president of MG Commercial Real Estate. “They don’t know what to do. The architects don’t know what to do, in terms of new design. People don’t know who is going to come back to work.”
Fear of causing a COVID-19 outbreak before the release of a vaccine is playing a part in keeping some away, but there are other factors, too, such as parental obligations to children who are at home, attending school virtually.
For many, questions about when, or even if, offices will be chock full of workers again continue to shake up the real estate landscape, altering what office construction is planned in Rhode Island, what spaces are leased and what properties are bought and sold.
And the uncertain future of traditional offices goes beyond mere real estate, with changed habits and routines threatening to reshape carefully cultivated company cultures and upending other businesses that rely on office workers as a source of revenue.
IT’S COMPLICATED
Not all offices are empty. Far from it.
Many companies have seen employees return on a voluntary basis, while other businesses have instituted rotating schedules, with alternating days or weeks at the office.
Citizens Financial Group Inc., for example, has reopened its 123-acre campus in Johnston, where up to 3,000 people were working before the pandemic. Employees are now coming in on a voluntary basis and in limited numbers. The same goes for the bank’s corporate headquarters in Providence. Despite videoconferencing technology, face-to-face interactions remain highly valued by Citizens, according to bank spokesman Rory Sheehan.
“Over time, we anticipate that more of the workforce will phase into working from the office,” said Sheehan.
That said, the workforce at most workplaces isn’t close to full strength.
Blue Cross & Blue Shield of Rhode Island, which employs more than 700 people, said its office workers have remained home, except for a core group of 10 to 15 employees. There are no immediate plans for others to come back, spokeswoman Jill Flaxington said.
Laurie White, president of the Greater Providence Chamber of Commerce, estimated that no more than 20% of the local workforce has returned to their offices, based on a recent Chamber survey of its members.
“It’s fairly clear that returning to offices, in most cases, is not happening now,” White said. “People are looking at January 2021 to evaluate it again.”
That timeline didn’t surprise White.
She said larger businesses – offices of 25 people or more – are more apt to have employees mostly working from home, while smaller businesses have had more returning.
The Chamber itself has few of its employees working in the office. Two or three people are there regularly, White said.
The virus is a concern, although White said she senses most workplaces have adapted to the facemask and social-distancing requirements needed to keep employees safe.
“The issue with returning to the workplace is complicated, and it’s complicated for a number of reasons,” she said. “Not the very least is the school situation.”
The fluctuating schedule with most schools – certain days in class, other days virtual, some grades or schools not having children back at all – has left parents of school-aged children with little recourse but to keep working at home.
“It’s huge,” White said of the impact of school schedules on offices. “It’s a very significant determinant in whether or not men and women, mothers and fathers and other caregivers, are able to return to work.”
Case in point: The 130-employee XRA Medical Imaging, headquartered in Cranston, was considered an essential health care business because it processes diagnostic images, but in the past several months more of its administrative workers have returned, such as 15 billing employees. They’re able to keep a safe distance from each other.
Philip Lynch, the executive director, said the company has remained flexible for those workers who need to work from home, including those caring for children.
“We have a person who comes just in the afternoon” because her child needs help with online classes in the mornings, Lynch said. “And we have some people who just can’t come back.”
‘BRAKES ON’
Just how many offices are permanently empty?
As of Sept. 28, the vacancy rate for downtown Providence office space stood at 10.6%, according to figures compiled by Washington, D.C.-based CoStar Group and provided by Providence-based Hayes & Sherry Ltd., a Cushman & Wakefield Alliance member.
That number is slightly lower than the 10.7% vacancy rate in the second quarter, but indications are that it could climb again as the pandemic lingers.
A report by Moody’s Analytics published in August estimated that offices in U.S. cities and suburbs may reach a historic vacancy rate of 20% by 2021.
Office occupancy had already been declining before COVID-19, the report found. Its projection has vacancies hitting 19% this year and staying around the 20% mark for two years. Rents could fall by 10% this year, Moody’s reported, with some cities, including New York, having much steeper declines.
In August, sales data collected by the New York-based commercial property data firm Real Capital Analytics found relative stability in prices from July to August, falling by 0.5 percentage points year over year. But the number of transactions dropped by 73%.
Because office leases typically run five to 10 years, the impact of the pandemic may not be appearing yet in the rental statistics, said Peter Hayes, co-founder of Hayes & Sherry and partner at Cushman & Wakefield.
But it’s clear there has been an impact.
“The leases we were working on – we even had leases that were ready to be signed for five to 10 years – I think all of them, they put the brakes on,” Hayes said.
In renewals, tenants want changed terms. Most companies are saying they want to wait 18 to 24 months before they agree to specifics, according to Hayes.
“They’re kicking the can,” he said, because businesses are unsure of how much space they will need and whether people are going to want to continue to work from home.
Will Providence and the Rhode Island suburban markets hit a 20% vacancy rate? “Who knows,” Hayes said. “I don’t think it’s unfathomable.”
RIPPLE EFFECT
The changing habits and movements of businesspeople have caused a seismic adjustment for many ancillary businesses that rely on the existence of office workers.
Robert Wheeler, president of Friends of Toto LLC, a Pawtucket dog boarding, grooming and day care business, said people working from home means his day care business has fallen by about half. He also no longer has business travelers dropping off pets for boarding.
The silver-lining? “Pandemic puppies,” dogs adopted by people working from home, need somewhere to burn off energy while their owners work. “A lot of our regulars are not coming in,” Wheeler said. “But now we have a rush of new dogs.”
He’s also added a delivery service – shuttling dogs back and forth to pet-grooming appointments – in an effort to hold on until travel rebounds. “Business travel, in particular, was a big part of our revenue stream,” he said. “That’s definitely out.”
Roger Gross, 74, has more than 50 years of experience selling business suits, but he’s never seen anything quite like this.
His store, Franklin Rogers Ltd. on Westminster Street in Providence, was once among seven men’s clothiers downtown over the years. Now he thinks he may be the last. But he’s determined to outlast the COVID-19 pandemic, even though it has cleared out his most dependable clients: well-heeled executives.
“What is missing is the guy, especially this time of year, who comes in and just loves clothes,” Gross said. “We’re not getting that customer. The person who simply loves clothes. There’s nowhere to wear it, so they’re not buying it.”
Instead, Gross has shifted his advertising to the internet. Now he’s getting younger people, and more people from the suburbs on weekends. He’s selling more suits for weddings, business interviews and funerals.
“I hate to sound ghoulish, but funeral services,” Gross said. “All through this process, in the last several months, we’ve had a kick-up obviously in people who are dying.”
The pandemic has also brought about a chill in construction of new offices.
In recent weeks, two prominent developers have indicated they’re pulling back on plans for new offices.
Developer Fortuitous Partners recently reworked its $300 million Tidewater Landing project in Pawtucket to shift a portion of the plans away from offices and toward multifamily housing.
Brett Johnson, Fortuitous founder and principal, cited the impact of the pandemic on traditional offices in a statement to the Pawtucket City Council.
And Wexford Science & Technology LLC, which has built an office and innovation building in Providence’s I-195 Redevelopment District, has renegotiated its purchase of additional land, getting another two years to decide whether to pursue additional office and research space.
The chairman of the district commission doesn’t fault Wexford. The new agreement reflects the softening of the office market.
“They have a fair amount of office space in the district that is not occupied,” said Robert Davis. “They’re just being cautious.”
CULTURE CONCERN
Many companies have found they’re more productive working remotely than expected. Others have found downsides.
Virgin Pulse Inc., which has about 350 employees based in Providence, has some employees clocking in at the office on a voluntary basis. Perhaps 20 employees are at the Providence Journal Building at 75 Fountain St. on a given day, according to CEO David Osborne.
Since moving its global headquarters to Providence in 2017, the company has put a heavy emphasis on fostering a lively office culture, with pingpong tables, a roof deck and even a basketball court on the fourth floor.
The pandemic has changed that. Osborne said he feels that the company culture is missing that collaborative interaction of employees all working together.
“There’s no doubt,” he said. “There are little fissures in the culture, in collaboration, in productivity. We’re dealing with that the best we can.”
At Advertising Ventures Inc., a full-service advertising agency that does business as (add)ventures, the company has entered what one executive described as a “pop-in” phase. Employees can work from the office and video production center if they’d like, or they can go home. It is flexibility designed to keep people working at their highest levels.
It’s not spontaneous, however. Anyone who wants or needs to work at the East Providence office, or even to stop in, has to check with the chief operating officer ahead of time to ensure people are adequately separated, said Mary Sadlier, executive vice president and chief strategy officer.
Through the summer, she estimated only about 10 to 15 of the 80 employees were coming into the office. So far, it’s worked well, although the company will reevaluate early next year.
“We’ve gotten really good feedback that they appreciate it,” Sadlier said. “It’s that flexibility. There is a sense of comfort for a lot of people to be in the office and there are people who love to be at home all the time.” Sadlier’s own preference is to work from the office. “I like the separation, the little bit of drive time to decompress before I get home,” she said.
Meanwhile, in the midst of the pandemic, a new office-based business, specializing in flexible space, is trying to get off the ground in downtown Providence.
The Westwey Club LLC is owned by a New York company that has two successful shared workspaces in the Albany region. The company is pushing forward with plans to offer open, shared workspaces, as well as private offices, on the 11th floor of the Turk’s Head Building.
The timing is challenging, acknowledged Charles Wiff, vice president of Aurelius Coworks, the parent company. Wiff has yet to sign any members.
But Westwey Club is in it for the long game. The company is confident that after the pandemic, companies will be more interested in flexible workspace than they are now.
“We think a lot of companies will shift to some sort of hybrid model that fits their needs,” Wiff said. “It may be that part of your team is co-located, part are remote workers. Whatever fits the business. But there will be shifts across the board. We’re really bullish on flexible workspace. What organization wouldn’t want greater flexibility at this point in time?”
Mary MacDonald is a PBN staff writer. Contact her at Macdonald@PBN.com.
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