New York City’s office occupancy rates are plummeting as remote work continues to be favored by workers, posing a significant threat to the city’s economy. Currently, office occupancy stands at just 41% of pre-pandemic levels, with a mere 9% of office workers returning to the workplace five days a week. This trend is raising concerns among economists, who fear a decline in downtown and midtown businesses, a decrease in tax revenue, and added strain on public services.
The impact of remote work is evident across various office settings. In New York’s SoHo neighborhood, rows of desks remain empty, while employees longing for the comforts of working from home are accompanied by their shaggy dogs in conference rooms. Downtown tech workplaces are resorting to game nights and team-building activities in an effort to entice employees back to in-person work. Meanwhile, on the subway, commuters are reveling in the luxury of spreading their bags across two seats, a once-unimaginable indulgence.
Mayor Eric Adams had previously criticized workers, urging them not to spend their days in pajamas at home. However, as of late August, New York’s offices were operating at less than half of their pre-pandemic capacity. Only 9% of office workers were returning to the office five days a week at the beginning of the year, according to the Partnership for New York City.
While the remote work situation varies across the country, with just under one-third of workdays in America being done from home, New York City is experiencing a shared feeling of uncertainty and stagnation. Much like being on a stationary subway train, passengers and office building owners alike are growing restless, unsure of when the situation will improve. This state of limbo has led economists to worry about an urban doom loop – a scenario in which fewer people commute, downtown and midtown businesses suffer, tax revenue declines, and the provision of public services becomes more challenging.
Eric Gural, whose family owns GFP Real Estate with a vast commercial real estate portfolio in New York City, finds himself caught in this stall. Having witnessed previous real estate market fluctuations, such as during the Great Recession, the aftermath of the 9/11 attacks, and the economic downturn in 1990, Gural acknowledges that this time feels different. Researchers predict that the value of New York’s office buildings could decline by nearly $50 billion in the coming years.
The commercial real estate industry is facing an unprecedented challenge, with New York City’s office vacancy rate surging over 70% since 2019 and approximately 96 million square feet of office space available for lease. Delinquency rates for office loans across the US have reached a pandemic-era peak of nearly 5%. Despite the current situation, Gural remains confident, partially banking on a broader return to the office.
Real estate agents have observed a trend of tenants gravitating towards high-quality office spaces in an attempt to entice employees back to in-person work. However, Class B owners are particularly vulnerable to the office crisis.
While the future of office occupancy in New York City remains uncertain, it is clear that the dominance of remote work is taking a toll on the city’s economy. As companies grapple with filling their office spaces, the implications stretch beyond real estate to the overall vitality of businesses, tax revenues, and public services. Finding a balance between remote work and in-person office culture will be crucial for the city’s recovery and resilience in the post-pandemic era.
