By Ilana Siyance
New York City’s commercial real estate industry has taken a hard hit due to the global pandemic. Office vacancies have reached record highs, sending the city scrambling for funding as tax revenues drop. As reported by the NY Times, the effects have been so devastating that experts are now asking the unthinkable— to convert over one million square feet of Manhattan office space into housing.
The Real Estate Board of New York, which represents the city’s largest landlords and developers, is proposing that New York City and State allow developers to more easily convert Manhattan and borough offices into residential apartments. Big business owners have surprisingly found that employees can be productive from just about anywhere, which may lead businesses to reduce their footprints in expensive commercial buildings even after the pandemic is behind us. “Anyone that thinks the way that people used the workplace in the past isn’t going to change post-pandemic is fooling themselves,” said Scott Rechler, chief executive of RXR Realty.
Property tax is the biggest source of the city’s revenue, and commercial property makes up 41 percent of that tally, as per State comptroller Thomas P. DiNapoli. Commercial property prices are already down close to 13 percent compared to last year, as per CBRE. Plus, commercial property sales have dropped by almost 50 percent through October, said Rahul Jain, a deputy state comptroller. The NY Times reported further that high-end retailers, and once esteemed tenants are working on litigations to terminate, reduce or void their commercial leases.
Roughly 140 million of Manhattan’s 400 million square feet of office space is considered to be of average quality or older and less than prime, as per Cushman and Wakefield. The real estate board says that changing even 10% of that into residential would add up to 10,000 apartments in Manhattan or 14,000 apartments across the five boroughs. It would also add a significant amount of affordable housing to the city, which the city has been looking for ways to increase.
Proponents point to Lower Manhattan, in which commercial real estate was successfully switched into a bustling residential community. The landlord board says the city and state should help facilitate the conversion: by rescinding zoning restrictions which require manufacturing in certain districts; by altering residential density requirements; and by adding new tax breaks for landlords. The change would require the approval of the mayor and City Council, as well as the governor and State Legislature.
