Companies of all sizes have shifted to remote and hybrid work due to the COVID-19 pandemic, so what does that mean for offices? In this Fool Live video clip, recorded on Jan. 28, Christina Chiu, CFO of Empire State Realty Trust (ESRT -0.44%) explains why she sees opportunity in the office real estate market.
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Matt Frankel: Let's talk about the office portfolio. There are a lot of investor fears that office has already had its time, especially in cities like where you operate. There is not going to be any need to go to the office in the long term. Companies are going to be remote forever, etc. Is Empire State worried about this? What are you seeing in your own portfolio?
Christina Chiu: We believe in the long-term viability and recovery of both New York City as well as the office market. Clearly, companies have communicated delays in their return to office plans because of the emergence of COVID variants, and we've seen that a couple of times and we've seen bounce-backs.
But most companies all remain committed to maintaining their office space over the long term, and that's offset by their actions. You see large long-term leases executed by major companies across various sectors, and I think the most notable is the tech companies, that post-COVID. These are decisions they didn't have to make during COVID. Since COVID happened amid COVID, they've signed well over 1 million square feet of space commitments, demonstrating they are committed to having that.
I think a key focus for the company is the quality and the location of the space and figuring out what does hybrid mean for them and what space design helps them to best meet those needs. It's definitely not one-size-fits-all, which is why you have the media and other anecdotes on different companies doing different things, it varies by type of work, the level of collaboration required by the work, what are the company's objectives for talent development, how do you foster a strong culture.
I think the other consideration to and it affects office is this is all against the backdrop of the Great Resignation and the war on talent that we read so much about. At the moment, flexibility, work-from-home is a key for companies really find, I want to hire that's very high on the list, but the pendulum swings, and so what we don't know yet is, what does remote work or lack of in-person presence impact career, talent, social skills development over time.
When the market slows and you have greater competition, will showing up in-person versus purely by Zoom (NASDAQ: ZM) be just as effective. I think for those companies that have opted to have no office presence, is that positive for talent attraction and retention and culture over time, so these are short periods. As we look at the office market, we think long-term viability is definitely there and the companies that have committed to space are saying, how do I build it out to best meet my objectives and foster collaboration? We think the flight to quality that things you're reading about; it's going to be very important.
Our portfolio is fully modernized and indoor environmental quality will come up, healthy buildings, energy efficiency. But the most unique aspect for us is we offer all those high-quality features in central location at a price point that's very accessible to most tenants. We're not worried, but we definitely recognize the bumps and the transitions that take place along the way.