Posted on 09/26/2022 9:01:26 PM PDT by SeekAndFind
Is New York City's central business district finally recovering after Covid-19? The simple answer is no. Although residential rents in Manhattan were inflated to record highs, the rise of remote work quelled any recovery for the office space market in the borough.
Bloomberg reported blocks of decades-old office buildings sitting partially empty are becoming a multibillion-dollar problem for building owners.
Even though Goldman, Morgan Stanley, and other Wall Street firms have pushed for a return to the office after the Labor Day holiday, NYC's office-occupancy trends are still below half, according to card-swipe data provided by Kastle Systems.
Office vacancy rates have skyrocketed in NYC and other major cities worldwide, though it appears the US will have a slower office-market recovery -- this is likely due to persisting remote working trends.
Columbia University and New York University released a report that found remote work trends could force companies to reduce office space. They said lower tenant demand could result in a 28%, or $456 billion loss in the value of offices across the US. About 10% of that comes from NYC.
Partially empty office towers are leading to slower economic recovery in NYC. Many buildings with high vacancy rates were constructed between 1950-80 and had no meaningful upgrades.
The area is clustered with buildings from the 1950s to 1980s, many of which haven't been meaningfully upgraded in decades. The few that have been renovated struggle to compete with counterparts in tonier addresses on Park, Fifth and Madison avenues and new mega-developments on Manhattan's far west side.
The Third Avenue buildings have become "leave-behind space" rather than the types of offices that attract world-class tenants, said Nick Farmakis, vice chairman at Savills. -- Bloomberg
The picture remains cloudy for NYC because converting office space buildings to residential is challenging and expensive. Manhattan has had some conversions, but owners and developers are met with many challenges of zoning and architectural restrictions.
"The problem with Midtown is a lot of buildings need air and lights that the city requires, and you don't always get that," said Ran Eliasaf, founder and managing partner of investment firm Northwind Group, which is exploring residential conversions in the city. "Not every Class B building is an ideal target for conversion."
Older buildings are also being left behind as businesses desire newer ones or relocate out of the city. This leaves NYC with a rising number of older office buildings with high vacancy rates and has begun to impact how much property taxes the city brings in.
New York, like other cities, relies heavily on property taxes to fund schools, police and firefighters, as well as other services. Property taxes are the biggest source of revenue for the city, delivering about $1 out of every $3 taken in. And offices account for about a fifth of that.
Before the pandemic, the levies had climbed by about 6% a year on average, driven by rising property values. That helped finance new programs and services, as well as keep up with rising labor costs, said Ana Champeny, the vice president for research at the Citizens Budget Commission, a nonpartisan budget watchdog and research firm.
Manhattan's major office districts were no exception, generating steadily more revenue. But, in the fiscal year that ended June 30, the first to take into account the impact the pandemic had on real estate, tax levies from those areas declined by 11% to $5.24 billion.
The biggest drop was in a part of Midtown East north of Grand Central that the city's Department of Finance calls "Plaza," which contains some of the Third Avenue properties.
-- Bloomberg
The takeaway is that NYC has too many old office buildings that are no longer appealing to companies because of various factors due to remote working and the desire for new shiny new towers with top-of-the-line amenities.
Remember, we've pointed out There's An Amazing Glut Of Office Space In Every Major Metro Area and Office Space Market Faces "Economic Downturn" Due To Perfect Storm Of Factors.
Rush Limbaugh predicted this before he died. His exit from NYC was caused by their anal-retentive tax harassment. I believe DJT could testify to this. IMO
(Face High)
Anxiety?
What the workers will never mention is the crime rate
That's not a sign of an upswing, it's a consequence of failure. Residential rents climbed because of the thousands and thousands of units landlords are keeping off the market after getting burned by the city government via the eviction moratorium during the Scamdemic.
Landlords began holding units off the market even prior to the moratorium due to changes in the law in New York City and aren't going to return them since they have no guarantees the city government won't screw them over again.
Think how many illegal aliens could’ve moved into these spaces. They do have bathrooms and kitchens.
Homeless and drug addicts would love to be out of the weather.
But even after Below Average Joe declared the pandemic over vacancies still go up, disproportionately in the most Liberal and crime ridden cities.
This may explain why this office space is not being turned into residential space.
With residential property being “sky high”, I would think there would be an opportunity to convert the offices into apartments or condos. Looks like the developers aren’t stupid.
…And yet rush hour traffic is the absolute worst I’ve seen in forty years. It’s so bad that I’ve got to tell my dealers that trips to Staten Island are out. Took four hours to get there the other morning.
So who is on the road?
A few things:
1) they are never going to get anywhere near all the toothpaste back in the tube. A lot of office workers are never going back. Of the ones that do go back, the most they will get from them is hybrid (ie 1-2 days a week) instead of 5 days a week in the office.
2) Commercial real estate is in serious trouble. Vacancies are high. Values are declining. What do you think the future looks like? Companies will look to downsize their offices. Pre-existing commercial real estate rental contracts are one of the only things keeping onsite work rates as high as they are now. A lot of those contracts will not be renewed.
3) Remote work for the very first time in 150 years incentivizes moving out of big cities and into small towns and rural settings.
4) Big expensive cities like NYC, San Francisco, Chicago, LA, are going to feel the pain first and most acutely. Why endure the pollution, traffic, crime, high prices for everything, etc if you don’t have to? If you are a single person making $125K per year in NYC you are definitely not rich. Your lifestyle is middle class. How does $125K a year sound for a single person in say - Charleston, West Virginia? What do you think happens to your standard of living as soon as you get the hell out of NYC?
5) Do I even need to point out that those cities are all deeply blue and that as White collar jobs flow out of them, that weakens the Democrat party machines there - OR - that as people move away from bigger cities with public this and government that and are forced to become more self sufficient, that will change their voting behavior?
I haven’t worked in an office since the start of Covid. I’m a consultant so I’ve been through the hiring cycle multiple times in the last 3 years. Its been a little bit more difficult to get jobs that are 100% remote in the last 6 months or so but I’m still able to do it......which means I have no reason to ever return to the office. No unpaid stressful and expensive commutes. No being under the thumb of ueber Leftist HR departments. More freedom.
They will have to convert the excess office space to residential space eventually. There’s nothing else to do with it. Those laws and zoning restrictions they mentioned? They’ll get changes in the law or waivers. City governments will want some kind of revenue from that space rather than nothing and they’ll be desperate to retain people as the population bleed continues from all the now remote former office workers leaving the cities entirely.
If what you are saying is true, then in would expect to see a flood of conversions from rentals to condos or co-ops in NYC. That would be the most effective way to deal with fears over idiotic government regulation of the rental market.
Rush hour traffic is terrible in NYC because a lot of people forced back into the office don’t want to ride on public transit. Take one bus load of commuters out of the system and they are replace by 50+ cars. One NJ Transit or Metro North train can have a thousand riders.
Don’t forget that some employers might be concerned that the city/state that forced them to have people work remotely might be afraid of the city/state flexing its muscle again - and the employers themselves might be very motivated to leave these authoritarian dumps.
Will Built to Suit?
Rush hour traffic is bad because people who previously took mass transit are driving. It started during the Scamdemic with empty streets and unsafe mass transit. Their driving, even tolerating heavy traffic, shows that the numbers of commuters are far lower than 2019.
They're not coming back. They sold their houses at peak price and moved to follow their parents who retired and watch the kids along with siblings who made the same decision to relocate.
6. Cities are obsolete
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