The pandemic economy threatens to change the direction of the office market, transforming the white-collar work experience and contributing to the demise of commercial building proposals that don’t have firm financial foundations.
The threat of contagion is forcing employers and developers to rethink everything from the layouts of offices to the most basic of amenities.
“Do you eliminate the shared coffee machine?” asked Jeremy Kronman, the Pittsburgh-based vice chairman for CBRE Group, a commercial real estate services firm with 200 offices nationwide.
Coffee may be the least costly consideration.
Unless a vaccine is developed promptly, anyone looking to build or refit an office is going to have to consider two trends — social distancing and working at home — that pull development plans in opposite directions.
“People are going to need more square feet per person, more private spacing, greater spacing, larger barriers, things like that,” Kronman said. On the other hand, if work-at-home trends continue, offices “will probably have less dense total populations."
Those trends, he said, could roughly cancel each other out, in terms of companies’ space needs.
Conference rooms may have separate entrances and exits, and traffic in the halls may be restricted so that people cross paths less often, he added.
This month, two major commercial development plans have been shelved. And though neither development team has explicitly blamed the virus, both cited the climate of economic uncertainty.
- FNB Tower, Lower Hill District: In an email to the Urban Redevelopment Authority on Wednesday, Pittsburgh Penguins Senior Vice President and General Counsel Kevin Acklin noted “significant external pressures arising from the COVID-19 pandemic” in explaining the slow pace of communication to the URA from First National Bank, which was slated to be the anchor tenant in a new office tower. A day later, the URA board delayed a vote on the FNB Tower plan, and the Penguins responded by ceasing their Lower Hill development efforts. The URA board may vote on whether to approve the plan anyway.
- Carrie Furnace tech-flex building, Rankin and Swissvale: The Davis Companies, a Boston-based developer that proposed a 100,000-square-foot office, research and development, and light manufacturing building on the Carrie Furnace site that spans the border of Rankin and Swissvale, has backed away from the plan. “The original plan we had for there is not happening,” said Christopher Lasky, vice president of development for The Davis Companies, in an interview with PublicSource. Why not? “The COVID came up,” he said, though he stopped short of attributing his firm’s withdrawal solely to the virus.
Major office developers Oxford Development, which is working on the second phase of 3 Crossings in the Strip District, and Millcraft Investments, which has proposed a $528 million complex called Esplanade in Chateau, did not return calls this month for comment on the status of those efforts.
If a vaccine or treatment for COVID-19 emerges, development could get back to normal fairly quickly, said Don Smith, president of the Regional Industrial Development Corp., a nonprofit that specializes in commercial revival of brownfield sites. “But people are hesitant to bet tens of millions of dollars on that.”
Not panicking in Bakery Square
The pandemic reversed the general direction of office development with gut-wrenching suddenness.
“All of these companies have spent the last decade squeezing more employees into the same square footage,” said Kronman. “But that trend doesn’t fit within the health and wellness requirements of dealing with the virus.”
Now some companies are talking about employees occupying the office in shifts or rotations, he said. Firms that need face-to-face interaction are weighing a return to individual rooms with doors. The virus’ effect on the office market is “probably going to be a multi-year trend that evolves.”
Ultimately? “You’re going to need fewer people in the office, but more square feet per person,” he said. The pandemic may also push businesses toward buildings with touchless elevators and ample parking and away from those with push-button lifts and reliance on mass transit, he added.
“I am not panicking,” said Todd Reidbord, president of Walnut Capital, whose Google-anchored Bakery Square spans Penn Avenue in Larimer and Shadyside. “People aren’t going to give up the collaborative office environment,” he said. Technologists and medical professionals “need to be together. They can’t just work at home independently.”
One reason for optimism about the next phase of Bakery Square: The anchor tenant is Philips Sleep and Respiratory Care, whose business lines include suddenly lucrative ventilators.
'Dark times' on the East Shore
The Carrie Furnace site, known for its well-preserved blast furnace, has for decades been an economically fallow field for the Mon Valley borough of Rankin and neighboring communities that have collectively rebranded themselves as East Shore. It’s been 32 years since U.S. Steel sold the 168-acre site, shared by Rankin and Swissvale, to a developer, and 15 years since the county bought it.
The Davis Companies was one of two respondents to a county request for proposals for the site. (The other was a combination of the Regional Industrial Development Corp. and the Pittsburgh Film Office, which is “still talking” with streaming content makers that would lease 10 proposed sound stages, according to PFO Director Dawn Keezer.)
Lasky, of The Davis Companies, said Carrie Furnace is “a beautiful site” in a winning location in “a real blue-collar, hard-working, Pittsburgh-typical neighborhood” with committed leadership.
The pandemic-driven turmoil, though, trumped all of that.
“Everybody’s watching [the pandemic] and planning accordingly,” he said. The Davis Companies, he added, is “trying to figure out how we get out of the gate” as the economy normalizes.
Allegheny County Development Director Lance Chimka wrote, in response to questions from PublicSource, that he’s hoping that The Davis Companies will reconsider. If it doesn’t, though, the county won’t rush to seek a new developer “due to uncertainty in the real estate industry.” The pandemic, he said, has changed the financial “calculus for everyone in the industry.”
Rankin — in which around 3 in 10 people live in poverty — will just have to keep waiting.
“Last year we thought we’d be rocking and rolling right now, doing something with that property,” said Rankin Borough Council Vice President William Pfoff, a member of the Carrie Furnace Steering Committee of local officials. “These are dark times, man.”
Develop PGH has been made possible with funding from The Heinz Endowments.