City's commercial real estate goes up in value, but office vacancy rate nearly 40%, report says
The Manhattan skyline is seen from the observatory of the Empire State Building in New York City on Jan. 12, 2022. A new report says the value of commercial real estate in New York has returned to prepandemic levels but the office vacancy rate is still nearly 40%. Credit: AP/Ted Shaffrey
The value of commercial real estate and office buildings in New York City has surpassed pre-pandemic levels, but office buildings still remain nearly 40% vacant, according to a report this week by the state comptroller’s office.
State Comptroller Thomas P. DiNapoli released a report showing the higher market values and how the city's tax base has been bolstered by premier office space in areas including Hudson Yards, Chelsea, Brooklyn and Long Island City.
"The value of office buildings in New York City is tied to demand for space that comes from new and expanding businesses hiring workers," DiNapoli said in a statement. "Demand for space in new, amenity-rich buildings in and around Hudson Yards, along with the firm growth around Union Square, the Village and business districts in the outer boroughs have helped increase market values, which ultimately will remain a key contributor to the city’s tax rolls."
Total office building market values in the city grew by more than 4%, increasing by $8.7 billion since 2020, driven by newer office buildings built after 2010, comptroller’s officials said. The total value is now $205 billion, the report said.
But DiNapoli noted that the return to the office has left the city's office buildings only slightly more than half full.
The comptroller’s office forecast that the city’s business districts will face a longer recovery if office occupancy rates do not improve. The citywide peak-day occupancy rate was 64.2% as of July, according to the report, which remains well below pre-pandemic levels, officials said.
Older underperforming buildings in certain business districts could be converted to housing in areas such as midtown Manhattan, DiNapoli’s report said.
Experts say the city’s real estate market has been recovering from the pandemic as companies look to lure employees and Long Island commuters back to the office with new amenities, including restaurants and pet care. Businesses, adjusting to hybrid work schedules, still value office space in Manhattan and the surrounding boroughs, they said.
On Long Island, companies have attempted to attract workers to the office through development plans such as the Melville Town Center and at the Station Yards development in Ronkonkoma, said David Pennetta, executive managing director of the Melville-based commercial brokerage firm Cushman & Wakefield.
He said employees are looking for walkability to work and access to food. Employees also asked for pet day care as a top priority after working at home during the pandemic, according to a study by his company.
"People want to live somewhere that’s fun. There’s been a reset since COVID. It’s about convenience, entertainment and quality of life," Pennetta said. "I think the work-from-home lifestyle we know now will not continue as it is. Companies may go to Fridays off in the summer, but normally to interact, you have to be in someone’s office. I think we’re going to see things swing back."
Manhattan has seen 12 million square feet of new office space in the past five years, said Kathryn Wylde, president and CEO of the Partnership for New York City, a nonprofit organization including business leaders and major employers. She said employers are trying to lure hybrid workers back to the office, including by expanding offices beyond Manhattan.
"New York’s economy continues to grow in output and the number of jobs. There is an ongoing demand for office space," Wylde said. "I think for most employers, while Friday is forever gone, most feel people will recognize the value of working in an office setting and will be back. I think we will continue to see an evolution in the nature and use of offices, but it looks like it will actually appreciate values rather than detract from them."
John Asbury is a breaking news and general assignment reporter. He has been with Newsday since 2014 and previously worked at The Press-Enterprise in Riverside, California.
