New York City's Empty Offices Reveal a Global Property Dilemma

An anonymous reader quotes a report from Bloomberg: In the heart of midtown Manhattan lies a multibillion-dollar problem for building owners, the city and thousands of workers. Blocks of decades-old office towers sit partially empty, in an awkward position: too outdated to attract tenants seeking the latest amenities, too new to be demolished or converted for another purpose. It's a situation playing out around the globe as employers adapt to flexible work after the Covid-19 pandemic and rethink how much space they need. Even as people are increasingly called back to offices for at least some of the week, vacancy rates have soared in cities from Hong Kong to London and Toronto. "There's no part of the world that is untouched by the growth of hybrid working," said Richard Barkham, global chief economist for commercial real estate firm CBRE Group Inc. In some cases, companies are simply cutting back on space to reduce their real estate costs. Others are relocating to shiny new towers with top-of-the-line amenities to attract talent and employees who may be reluctant to leave the comforts of working from home. Left behind are older buildings outside of prime locations. The US is likely to have a slower office-market recovery than Asia and Europe because it began the pandemic with a higher vacancy rate, and long-term demand is expected to drop around 10% or more, Barkham said. New York, America's biggest office real estate market, is at the center of the issue. A study this year by professors at Columbia University and New York University estimated that lower tenant demand because of remote work may cut 28%, or $456 billion, off the value of offices across the US. About 10% of that would be in New York City alone. The implications of obsolete buildings stretch across the local economy. Empty offices have led to a cascade of shuttered restaurants and other street-level businesses that depended on daytime worker traffic. And falling building values mean less property-tax revenue for city coffers. A strip on Manhattan's Third Avenue, from 42nd to 59th streets, shows the problem of older properties in stark terms. While New York leasing demand has bounced back toward pre-pandemic levels, the corridor has 29% of office space available for tenants, nearly double the amount four years ago and above the city's overall rate of 19%, according to research from brokerage firm Savills. "There's no easy fix for landlords, who rely on rental income to pay down debt," notes the report. "Some cities are exploring options to turn downtown offices to residential buildings: Calgary, for instance, has an incentive program for such redevelopments. While New York has had some conversions, the hefty costs and zoning and architectural restrictions make it a difficult proposition."

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