Key Highlights
- Pandemic shift to workplace culture could turn +1M square feet of Manhattan office space into housing
- Commercial real estate in NYC provides 41% of city’s tax revenues
- As of late October, 10% of 1M office workers in Manhattan reporting to work
- Rising tide of litigation between landlords and tenants
Just as the COVID-19 pandemic will bring safe and effective vaccinations into our bodies and first-run blockbusters such as “Wonder Woman” onto our home screens, it just may turn +1M square feet of the country’s largest business districts into housing.
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According to the Partnership for New York City, just 10% of Manhattan’s office workers were coming into the office to work as of late October. 14% of Midtown Manhattan’s office space is standing vacant, the highest level of vacancy since 2009. One-third of Madison Avenue’s storefronts are empty, twice its vacancy rate five years ago. Filings to build new buildings are down -22%, the lowest number of filings since 2010. Commercial property sales have plummeted by almost half, as of the end of October. And while commercial rents have dropped nearly -13% y/y, according to CBRE, even the highest-end developers and retailers are suing each other for millions of dollars for either unpaid rent/fees or lease forgiveness/freedom.
This kind of “emptying out” and closure damage to New York’s commercial real estate industry was not foreseen by even the most pessimist industry forecasters during the pandemic’s early summer. Nor was it seen by the city’s financial and policy wonks. As commercial real estate accounts for 41% of NYC’s tax revenues, according to State Comptroller Thomas P. DiNapoli, some real estate experts, such as James Whelan, president of the Real Estate Board of New York, are now saying, “It would probably be fair to say we haven’t hit bottom yet.”
So now what? “Anyone that thinks the way that people used the workplace in the past isn’t going to change post-pandemic is fooling themselves,” said Scott Rechler, CEO of RXR Realty and chair of the Regional Plan Association.
Both landlord and tenant groups are proposing that the city and state allow developers to convert many Manhattan and borough offices and hotels into residential housing space. Of course, zoning laws and density rules would need to be changed but such changes may bring some relief to landlords, tenants and to city and state tax coffers alike.
It’s a long way from here to there but all major metros and states with large and now virtually empty business districts will need to reimagine how to reuse and blend commercial and residential real estate interests in order for them, and their required services and functions, to survive in a, hopefully, post-pandemic world.
Thanks to The New York Times and Bloomberg.
Also read: For 43M Americans At Risk of Eviction, Much Is Riding on Trump’s Lame-Duck Session, Pandemic NOT Derailing Housing Market, Podcast: Your 2021 Real Estate Business And Success Plan Has Arrived. (Download NOW) | Tim and Julie Harris
