Nearly a quarter of all New York City office space is vacant. Now, the pain is spreading to the city’s budget.
From a report out this morning in Bloomberg:
The atrium at 60 Wall Street was once a thoroughfare for thousands of Deutsche Bank AG employees.
These days it’s eerily quiet even during rush hour on a weekday morning. The occasional pedestrian crosses between Pine Street and Wall Street, the cavernous space utilized as a subway exit or a place to nap at one of the unused bistro tables.
The 47-story skyscraper, owned by Singapore’s sovereign wealth fund and Paramount Group, has sat empty since 2021, when Deutsche Bank — its only tenant — relocated to Columbus Circle.
Those skyscrapers pay a lot of taxes. But with vacancies everywhere, tax revenue is coming up short:
It’s a worry for city officials, who for the last decade have relied on an ever-expanding commercial real estate sector for taxes to pay for schools, cops and trash collection. Commercial property taxes contribute about 20% of the city’s total tax revenue — with office buildings, specifically, contributing 10%. And as those revenues are flattening, the city’s expenses are forecast to keep growing, creating challenges for Mayor Eric Adams’s agenda.
NYC’s current office vacancy rate is 22.7%. For decades, it never reached half that level.
But COVID, remote work, and safety concerns are keeping employees home.
If companies aren’t using their whole space, they will downsize or close their offices entirely when the lease is up. Some companies are skipping out on rent altogether.
That makes it harder for landlords to pay taxes. It could also reduce the assessed value of buildings, cutting tax payments for many years.
Meanwhile, landlords are stuck with these bad assets. There are no buyers for vacant office space in NYC at any price, according to a broker friend of mine.
But NYC can help get people back in offices and the taxes flowing. It starts with safety.
When crime makes people afraid to go to work, they’ll pressure their managers to work remote. In a strong labor market, managers will acquiesce.
After all, the CEO probably lives nearby and rides to work in a livery car. But the average employee endures a long subway commute that has now become dangerous.
NYC has to start by cleaning up the streets and making the subway safe. When people feel secure, many will want to come into the office and see their co-workers.
The city and state must also make it easier to convert office space to other uses.
New York does have some advantages. It’s safer than SF and has a more traditional industry mix.
The banks that dominate NYC want their people back in person.
Personally, I prefer remote work with the occasional get-together.
But if people feel safe, many offices will fill up again. And the city coffers will too.
What do you think the future holds for empty offices? Leave a comment and let us know!
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