The building owners, the city, and thousands of employees face a multibillion-dollar dilemma in midtown Manhattan.
Office buildings that have been around for decades sometimes stay unoccupied because they are caught in a limbo between being too old to attract tenants who want modern conveniences and being too new to be demolished or repurposed.
In the wake of the Covid-19 outbreak, businesses everywhere are reevaluating their space requirements and adjusting to the trend of more flexible work schedules. Vacancy rates have skyrocketed in major cities like Hong Kong, London, and Toronto despite the growing trend of bringing workers back to the office at least part-time.
To lower their real estate expenses, some businesses are simply reducing the amount of space they occupy. While some businesses are staying put, others are moving to gleam new towers with first-rate facilities to entice employees and talent who might otherwise prefer to work remotely. The remnants are primarily older buildings in less desirable areas.
Given that the United States had a higher vacancy rate before the epidemic, and since long-term demand is predicted to fall by 10% or more, the country’s office market is projected to recover more slowly than those in Asia and Europe. The issue is centered on New York City, the largest office real estate market in the United States.
Lower tenant demand due to remote work may shave 28%, or $456 billion, off the value of workplaces throughout the US, according to a study conducted this year by professors from Columbia and New York Universities. Around 10% of that total would be found in the Big Apple.
The local economy as a whole is affected by old buildings. As office buildings have closed, so too have the restaurants and other stores that relied on foot traffic from office workers during the day. With property prices decreasing, the city will receive less money from property taxes.
The Plaza District in Manhattan’s Midtown experienced the biggest net absorption of any office submarket during the quarter, at 621,000 square feet. While impressive, this was still a far cry from the fourth-quarter champion in 2020, the Times Square neighborhood, which absorbed almost 1 million square feet by the end of 2021.
In fact, by the end of 2022, the Times Square neighborhood had a negative net absorption of 484,000 square feet. That wasn’t even the island’s worst show. Penn Plaza/Garment District is the worst-performing submarket regarding net absorption, with a negative 1.3 million square feet.
Revenue from the city’s office buildings may be on the uptick according to this year’s tax returns. Still, a full recovery may take several years, especially if tenant demand remains weak. Champeny speculated that New York’s almost $1 billion annual revenue from a levy on large commercial leases could decrease if demand from large tenants like legal and financial-services firms remained lackluster. Consequences of office use can be felt in a variety of sectors, including public transportation, shopping, and lodging.