Empty Offices in New York City Expose a Global Property Crisis
The rise of remote work will have a negative impact on older buildings, leaving landlords in the lurch.
A multibillion-dollar problem for building owners, the city, and thousands of workers exists in the heart of midtown Manhattan.
Blocks of decades-old office towers sit partially empty, caught between being too old to attract tenants looking for the latest amenities and being too new to be demolished or converted for another use.
It’s a scenario that’s playing out all over the world as employers adjust to flexible work after the Covid-19 pandemic and reconsider how much space they need. Vacancy rates have risen in cities ranging from Hong Kong to London and Toronto, despite the fact that people are increasingly being called back to work for at least part of the week.
Vacancies in major cities increased during the pandemic.
“There is no part of the world that has not been affected by the rise of hybrid working,” said Richard Barkham, global chief economist for commercial real estate firm CBRE Group Inc.
In some cases, businesses simply reduce their space to save money on real estate. Others are relocating to gleaming new towers with first-rate amenities in order to attract talent and employees who may be hesitant to leave the convenience of working from home. Older buildings in less desirable locations have been left behind.
Because it began the pandemic with a higher vacancy rate, the United States is expected to recover more slowly than Asia and Europe, and long-term demand is expected to drop by 10% or more, according to Barkham. The issue is centered on New York, America’s largest office real estate market.
A study published this year by professors at Columbia University and New York University estimated that lower tenant demand due to remote work could reduce the value of offices in the United States by 28%, or $456 billion. Only about 10% of that would be in New York City.
The consequences of obsolete buildings affect the entire local economy. Empty offices have triggered a chain reaction of closed restaurants and other street-level businesses that relied on daytime worker traffic. In addition, falling property values mean less property tax revenue for city coffers.