Strong Observatory Recovery Marks Second-Quarter Results for Empire State Realty

No-moat-rated Empire State Realty reported decent second-quarter results which were marked by a strong observatory recovery. The core office portfolio of the company continues to struggle as operating expenses normalize and workers remain reluctant in returning to offices. The physical attendance in restaurants, movies, and other entertainment-related events has reached pre-pandemic levels, but the recovery in physical office occupancy levels has remained tepid. We believe that employee behavior is primarily driven by preference and flexibility with regard to returning to the office. This is different from the early stages of the pandemic where the risk of getting the coronavirus was the main reason for lower office utilization. We would like to highlight that this dynamic does not bode well for the owners of office real estate as it points to a more permanent shift in worker and employer behavior. Remote work has now become a norm in corporate America, and we are also seeing increasing signs of employers accepting remote work and becoming comfortable with the new normal.