Around the U.S., about 40 percent of office workers have returned to their desks, as we report in this issue in “COMMERCIAL REAL ESTATE BUST? OFFICE OCCUPANCY RATES IN TOILET,” but barely a third of desk jockeys in midtown Manhattan are back in place, according to ID card swipes counted by data service Kastle Systems.
Midtown accounts for 11 percent of all office space in the entire U.S., according to the office of the New York State Comptroller, which also reported that, in 2019, office workers made up a third of New York City’s workforce and created two-thirds of the city’s economic output.
Pre-COVID, Manhattan saw about 2.6 million office workers on its streets every weekday—a number larger than the population of Houston, Tex.—including more than 1.8 million commuters.
Now, once-packed commuter trains are less than half-full and eateries and other retail shops that relied on that traffic have disappeared.
A fifth of storefronts in the neighborhood of Grand Central Station are now vacant, twice as many as before the COVID era, the nonprofit Grand Central partnership, a business development group, reported.
New York mayor Eric Adams and Kathy Hochul, the state’s governor, have urged employers to prod workers back into town, but to little avail, the WSJ noted.
People will still work in a central office, but not as often, and they need more incentives to do so, James Patchett, former chief of the city’s economic development corporation and now a landlord, told the WSJ.
As we noted elsewhere in this issue, many employers are offering hybrid models that allow employees to work from home two or three days a week.
Midtown faces the same kind of transformation that struck the U.S. heartland’s industrial cities when factories shut down and jobs migrated abroad, Richard Florida, University of Toronto professor and a noted urbanist, commented to the WSJ.
“The central business district is the last gasp of the industrial age,” he said.
“The idea that you have to pack and stack office workers and they have to commute in and 9 and leave at 5 and work in cubicle farms is just silly,” he added. “It’s completely out of touch with the way people work.”
“There’s no question that Midtown is going to have to reinvent itself,” researcher Chris Jones at the Regional Plan Association, told the WSJ.
The transition “is going to be hard on small businesses and low-wage workers that don’t have the resources to adapt,” he warned.
The city is considering revising zoning regulations to allow more housing in Manhattan, including Midtown, a move already under way in lower Manhattan, where older, smaller vacant office space has been making the shift to apartments over the last two decades.
However, Midtown’s buildings are bigger and less easily converted from office suites to residential flats, the WSJ noted.
TRENDPOST: A “new normal” is emerging in which workers who wish to, are allowed to work at home two or three days a week. In that new normal, many corporations, and likely most, will realize they can do with less office space.
As we noted in “Commercial Real Estate: Boom or Bust?” (25 May 2021), Fitch Ratings has calculated that if companies give up 10 percent of their office space, the value of office buildings could plunge as much as 40 percent.
As we forecast in articles such as “Return to Office Postponed: Commercial Real Estate Bust?” (14 Sep 2021), the new normal of remote work has redefined economic ecosystems in those urban centers.
Commuters buy lunch, gifts, clothes, gadgets, and other items in locales where they work; as workers stay home, downtown stores and restaurants will lose their traditional customer base and gas stations along commuter routes will see business plummet.
At the bottom of this downward spiral: cities themselves and the people who live in them.
As we have noted in “New York Office Vacancies Set Record” (13 Jul 2021) and elsewhere, cities depend heavily on property taxes for revenue. (Property taxes account for more than 40 percent of New York City’s annual budget.)
Less revenue means fewer services, leading to a reduced quality of life, persuading even more people to move away, reducing property tax revenue.
TREND FORECAST: To keep residents, businesses, and property tax revenues, advanced cities will become laboratories for innovation in everything from marketing their brand identities to negotiating with businesses over taxes to the ways in which essential services are provided.