NYC Office Vacancy Rates Highest in 30 Years

More than 18 percent of office space in New York City is vacant, the highest rate in more than 30 years, according to a report just released by the state comptroller. Rents are down 4 percent and total employment in the city has dropped by 11 percent, almost four times as much as after the 2008 financial crisis.

More than 10 percent of all office space in the nation is shown in this photo, and much of it may remain vacant after the pandemic ends. Photo by Harold Hoyer.

One indicator of the reduction in office use, the report notes, is swipe rates: the number of times that employees access buildings. According to Kastle Systems, a company that manages access systems in many New York City office buildings, swipe rates declined by more than 95 percent in April 2020. Since then, they have recovered to less than 30 percent of pre-pandemic rates. This suggests that a lot of office space that is still under lease may be vacated when leases expire.

Property owners have been hoping employees would return to work, but such hopes have been repeatedly dashed. Last May, employers estimated that more than 60 percent of their employees would be back at work by the beginning of this month. Thanks to the delta variant of COVID and similar factors, it was probably less than 40 percent. While major office employers expect employees will eventually return to offices, most are adopting a “flexible hybrid model” of allowing employees to work at home at least some days a week. This includes Amazon, Apple, Bloomberg, Citigroup, Goldman Sachs, JPMorgan Chase, Microsoft, and Viacom, among others. Companies are likely to pare down their office spaces if most of their employees aren’t working in the office two to three days a week.
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The CARES Act gave state and local governments $340 billion, partly to offset anticipated declines in local tax revenues. This may have been premature, however, as property taxes are based on the assessed value of real estate in the previous year. New York City saw an 8 percent increase in property taxes in 2021, but the market value of properties declined by 5 percent in 2022 while office properties declined by 17 percent. Since, under the city’s taxation system, offices are taxed at roughly twice the rate of other properties, the city can expect to see tax revenues decline by close to 10 percent in 2022.

Since New York City’s housing market is still unaffordable, relative to many other cities, some people are talking about converting vacant offices to residences. This, however, is a lot easier said than done. Aside from the fact that many office zoning codes don’t allow for residential uses, the plumbing, electrical, windows, and other needs of residences are quite different from those for offices. This can make conversions so costly that it would be less expensive to build more housing in the suburbs. Once converted, former offices are often located far from schools, shops, and other amenities desired by residents. The results can be a “catastrophe” for residents of the former offices.

The south end of Manhattan contains more than 10 percent of all the office space in the nation, but other concentrations of offices are found in Washington, Chicago, Dallas, Los Angeles, Houston, and Boston. All of these places are no doubt bracing themselves for high vacancy rates, lower property values, and lower tax revenues through and after the pandemic. Urban and metropolitan planners need to take these changes into account as they propose new transportation and housing projects and policies.