NYC’s Dual Dilemma: A Housing Deficit and Abundant Office Space
Updated: Aug 8
This existential question weighs heavy on the mind of anyone and everyone involved in NYC commercial real estate. It is part of a broader discourse, nationwide and globally, about the future of work and the long-term viability of office real estate.
It’s also the focus of an excellent piece I recently read from Curbed, “New Glut City: The city’s mega-office landlords are panicking, pivoting, and shedding what’s worthless. One opens his books.”
The outlook for commercial real estate in Manhattan (and beyond), is dire- with serious consequences for tax revenues and the social health of the 5 Boroughs. Traditional bastions of office real estate, like Manhattan, face the most challenging path. I’ve seen this firsthand in the post-pandemic commercial real estate winter.
Cushman & Wakefield reports that Manhattan's office vacancy rate currently stands at approximately 22%, marking the highest vacancy rate since the company started monitoring the market in 1984. According to data from CoStar there's over 76 million square feet of vacant office space.
Spanning over 76 million square feet, the space in these structures is on par with over 40 skyscrapers, each the size of the Chrysler Building. The implications of these sky-high vacancy numbers are broad, and obviously, not very positive for the sector as a whole. Not only does the rise of remote work reflect a shift in the way businesses operate, it also poses substantial challenges to the city’s economy as a whole.
The modern Manhattan economy is one built on the familiar migration patterns of workers filling up Manhattan streets, spending their hard earned dollars locally, and finally, heading home to other boroughs or suburbs. Ripple effects of these vacancies are felt across various sectors, from maintenance and security services to local businesses that once thrived on the daily influx of office workers.
Scott Rechler, CEO of the prominent private real estate firm RXR, has voiced concerns about potential economic "contagion" stemming from troubled commercial real estate debt with office property at the forefront. In his estimation, he expects the total number of regional banks in the United States to decline by between 500-1000 over the next two years, due to forced consolidations and bank failures. Last year, researchers from Columbia University and NYU released a study suggesting New York office buildings had lost 44% of their long-term value.
Despite this, a comptroller's report indicated a modest revenue drop of about $1 billion by 2027. However, Columbia finance professor Stijn Van Nieuwerburgh believes this was an underestimation, suggesting that the city could face a tax loss of approximately $6 billion annually if remote work continues at its current pace. RXR’s Rechler believes that post-crisis, new opportunities will emerge for enterprising market participants, and the city as a whole. One silver lining: the challenges in the office market present a unique chance to address NYC's pressing housing needs.
The RXR principal points out the city's dual dilemma: a housing deficit and an abundance of outdated office spaces. Pre-pandemic, office spaces fetched around $1,000 per square foot, while potential conversion sites now hover around $300. For a successful housing transition, stakeholders must come to terms with the diminished value of previously lucrative properties- and act accordingly.
While change is constant, New York remains. This sentiment is reflected in a recent quote from Mike Bloomberg, shared with Curbed by Rechler: “Anytime anyone bets against New York evolving, they lose that bet.”
In my experience, New York’s ability to change, grow, and become more resilient is what makes this such a great place to live and do business. I believe that near-term pain is all but ensured, but that our local commercial and residential real estate markets will come out stronger in the end.
Do you agree?
Reach out and let me know where you see New York real estate in the next 6 months to a year. Set up an appointment by registering here. I would love to hear from you.
Corey Cohen Founder
The Roebling Group