Offices, particularly those in gateway markets, carry the biggest question mark for institutional investors trying to see beyond the pandemic. Will tenants shrink their footprints as a cost-cutting measure, or will they add more space to promote social distancing? And what role will work from home play?

PERE has focused on this conundrum in a dedicated, deep-dive analysis [CLICK HERE].

Amazon and Facebook have weighed in on the debate by announcing plans to greatly expand their presences in New York City. While these blue-chip tech firms do not represent the typical office occupier, their commitments show it is premature to write-off the economic magnetism of big cities.

This week, Amazon said it would bring 2,000 workers to new offices in the  Hudson Yards complex, where it leased 335,000 square feet last year, as well as a 660,000-square-foot property on Fifth Avenue it bought from WeWork in March. The e-commerce titan also plans to add 1,500 white collar workers in markets such as Dallas, Detroit, Phoenix and San Diego. This follows Facebook’s announcement earlier in the month that it had leased 730,000 square feet a stone’s throw from Hudson Yards, where it, too, has amassed a large footprint. In total, Facebook has 2.2 million square feet at its disposal in New York.

These moves run counter to a prevailing narrative about major occupiers relying more on remote work. Executives at banks such as JPMorgan and Morgan Stanley have mused about reducing their office holdings. Twitter offered permanent work from home. These proclamations, coupled with accelerated exoduses from New York and San Francisco, have stoked fears about the ability of traditional office hubs to compete with lower cost, lower density markets. Amid this uncertainty, institutional capital has been flummoxed about how to approach the biggest property type by weight in most indexes.

It is easy to dismiss Facebook and Amazon as outliers. After all, they have weathered the pandemic far better than most. Along with Apple, Netflix and Google, they have seen their already staggering market shares grow to unprecedented heights as their products are used more and their stocks have led a blistering public market rally. But simply having the means to afford hundreds of thousands of square feet of premium office space does not justify the investment.

Facebook, Amazon and firms of their ilk use their offices to attract talent. By rolling out grand plans for office expansions, they are signaling to prospective employees that top-notch office space will be available to them if they want it. This may come with enhanced remote work allowances, as Facebook has suggested. But, ultimately, both companies are wagering that thousands of well-educated, highly skilled workers will want New York to be their base of operations. If Amazon thought it could achieve this in a smaller market, it had plenty of options to choose from after its HQ2 search in 2018.

Offices in major cities throughout the US and Europe remain closed because of covid-19, so the announcements by Facebook and Amazon are unlikely to trigger a deluge of leases, sales or investment activity. But they are valuable to institutional capital in other ways.

In the short term, it is proof of top-flight office space’s appeal to blue chip tech firms. Further out, that two of the biggest companies in that space are willing to make big, long-term commitments bodes well for the future of big city office markets. Institutional capital and its management should take note.