Workers are returning to the office in increasing numbers, especially downtown, and that’s lifting owners’ and retailers’ spirits and their business prospects. Michael Romer, managing partner of law firm Romer Debbas, said: “Returning to office is the ultimate factor. Every major city needs their workforce back if they expect the retail sector to survive.”

Three months ago, CNBC anchor Brian Williams spoke bluntly on air: “Nobody’s hangin’ around after work in many urban areas because so few are even going into the office in the first place.” Security access firm Kastle Systems tracks office use in 10 major metropolitan areas, and for the week of Oct. 3 through 7, it averaged 47.4% of early-2020 levels. According to a national survey CBRE published in August, 19% of companies had no set guidelines for workers’ return, and roughly 58% reported their employees were working in the office less often than executives expected. That’s a noteworthy metric, given the expectation that bosses would request more in-office time post Labor Day.

Overall, the number of workers showing up to the office in Manhattan is rising. Forty-nine percent of Manhattan office workers are at the workplace on an average weekday, up from 38% in April, according to a September survey by the Partnership for New York City, which also expects that figure to exceed 50% by the end of the year.

CoStar national director of retail analytics Brandon Svec said the loss of office workers has led to significant underperformance of urban retail since the start of the pandemic, especially within office-centric, gateway markets. “Some urban retail markets have survived, even thrived, on the back of a resurgent apartment market and uptick in tourism, but if you are a retailer in a location reliant on office workers and you lose 25% to 40% or more of your daily consumer base, it becomes very difficult to justify staying open.”

Lunch, Drinks and Dinner

Cox Castle & Nicholson partner Daniel Villalpando said dormant downtowns especially impacted ground-floor retail serving office buildings and other retail that relies on the 9-to-5 crowd. Terra Alma managing director Edie Weintraub said central business districts’ retail and restaurants “are feeling the pinch the most.” Many relied on breakfast meetings and lunch traffic for a good portion of their business, she said. Downtown retail “is more focused on food-and-beverage and convenience retail,” agreed EastBanc principal Philippe Lanier. Indeed, some restaurants in slow-traffic areas are emphasizing their venues as ideal for wedding receptions. Others, trying to appeal to the work-from-home crowd, are marketing Friday brunch rather than Friday happy hours, The Wall Street Journal reported.

Pivoting the Neighborhood

Draper and Kramer senior vice president Mike Mallon said that as a reaction to the pandemic’s chilling effect on retail, “retailers had to figure out how to shift their business model to survive.” RREG vice president of engagement Jessica Rosati said owners and retailers must shift the focus for office-related retail space to an “experience” that will entice workers. “What we’ve learned since the pandemic is that employees may not care about traditional coffee and bagels but might visit an on-site bar or brewery. Creating work environments where people want to leave their house for the office will take more imagination than just a coffee or juice place. I don’t think anyone has really figured out what the secret sauce is that will get people out of their pajamas.”

Urban areas whose retail relied on commuters could shift their identities to residential. Moody’s Analytics economist Ermengarde Jabir said: “If flexible/hybrid working unequivocally becomes the new norm, retailers dependent almost entirely on commuters are likely to close, causing vacancy rates to rise, unless, of course, the submarket or neighborhood transforms into a residential area, attracting new restaurants and department stores.” Wall Street itself has seen the rise of branded residential developments in recent years, including the Cipriani Club Residences, which houses one of its namesake’s restaurants. And historical French luxury department store Printemps is set to open its first U.S. location in spring 2024 at One Wall Street.

So How Will the Return to Office Play Out?

Experts are showing some optimism. “Offices seem to be opening up again, so hopefully, affected retailers are able to hold on until more people return to the office,” Villalpando said. Lanier added: “I believe it will return faster than skeptics anticipate but there will be less density. More workers will be coming to the office 15 days a month versus 20, and it will likely result in lower rents to accommodate the reduced earnings retailers can achieve.” And Stokas Bieri Real Estate principal Jim Bieri believes the return to office will accelerate this fall. “Many companies have found remote or flexible office hours to be an effective model,” he said. “However, a majority of companies will demand more time in the office by the end of 2022.”

Like Lanier, Bieri pointed out the impact on rents: “Retail has become an amenity in many cities, and the absence of office workers who can shop on their lunch hours has softened retail rents.” Rosati agreed: “It’s currently one of the biggest factors affecting leasing velocity,” she said, noting that a well-located, 2 million-square-foot office campus that RREG manages has had vacant retail for five years. “There are maybe 200 people or so a day on campus. It’s been a factor in the tech community, especially. While the office tenants still occupy the office space, key decisionmakers aren't yet requiring their employees to return.”