Manhattan – New York City – 08/15/2022 – The AMC Theater is located on 42nd Street in Midtown Manhattan. (Luis S. Ribeiro for NY Daily News) (Luis S. Ribeiro for New York Daily News)
As any New Yorker will easily remember, Midtown Manhattan, which stretches from 34th Street to 59th Street and from Third to Eighth Avenue, was once a bustling beehive of corporate activity and commerce.
On a typical weekday from 7:00 am to 8:00 pm, tall office buildings are filled with professionals, food trucks line the streets, tourists shun diners, and bars and restaurants are packed.
Companies move employees to remote home offices for months, years, and in some cases forever. With no homes to make up for the damage, Midtown Manhattan now feels like a shell of the past, especially when it comes to those commercial office spaces that used to fill the suburbs.
In San Francisco, Chicago, Denver, Los Angeles, Washington DC and elsewhere, city officials are trying to figure out what to do with the commercial real estate ghost towns left behind by COVID.
The economic effect on a national scale is significant. According to a study by Columbia University and New York University, reduced demand from tenants could reduce US office costs by as much as $456 billion — nearly 10 percent of that drop in New York alone.
Just this week, there have been a lot of headlines calling for this issue. At Axios Wednesday: “Cities push to turn abandoned office buildings into homes” At Business Standard Tuesday: “Empty New York offices signal global real estate troubles” Forbes on Monday: “Fear of a commercial real estate ‘apocalypse’.”
If it seems that serious problems are about to arise, hence the sudden surge of interest, it is because they are.
In the West, the San Francisco Standard warned of a “great collapse in commercial real estate.” In New York, experts fear “doomsday for office real estate.” In Chicago, “the office market is much worse than anyone expected,” said one developer. The hospitality industry there is said to be “most at risk of default or default on mortgage-backed commercial securities”.
It is for all of these reasons that cities across the country are ultimately facing the harsh reality that business is not recovering as it was before the pandemic, and something needs to be done.
Converting dilapidated office buildings — unlikely to attract new commercial tenants looking for the more refined, well-appointed spaces offered by places like Hudson Yards on Manhattan’s West Side — into much-needed housing solves many issues.
On the one hand, leaving these ghost towns uninhabited creates many problems for them, including increased crime and homelessness, both of which can be addressed by rezoning Midtown to increase living space.
On the other hand, the exodus of corporate employees to the suburbs and elsewhere has created a domino effect in nearby restaurants, bars, hotels and shops, all of which will benefit from a new group of loyal customers. New York and the region’s smaller business districts benefit from employees working from home during the day.
There is also a need. REBNY, the real estate trade association, estimates that 14,000 new residential units could be built by renovating 10 percent of New York City’s low-rise office buildings. This, of course, will not solve the problem of lack of housing in New York, but there is nothing to sneeze at. In Los Angeles, a RAND study identified commercial properties that, if upgraded, could yield 92,000 new housing units.
The conversion of these old buildings into housing also provides environmental benefits. According to a 2016 study, “building reuse is almost always more sustainable than demolition and new construction when comparing buildings of similar size and function.”
So what is retention? As you can imagine, this is an expensive proposition. Cities are asking for hundreds of millions of budgets to make these transitions, and in some cases are incentivizing projects. But this is easier said than done.
There are also bureaucratic red tape and restrictive zoning barriers that naturally inject political agendas into seemingly simple problems, but obvious problems with obvious solutions.
But this article has been hanging on the wall for a long time. In fact, the paper’s editors had been calling for renovations to office buildings in New York back in March.
Facing looming real estate troubles seems urgent again – if not too late – perhaps now cities like New York will decide that some of the collateral damage from COVID is permanent and needs new solutions.
Instead of waiting for businesses to return to downtown, let’s do something useful for once bustling corporate spaces and help keep this once bustling part of New York alive and well.