Office buildings in New York in two years lose their value by about 400 billion dollars

With fewer people commuting to offices in Manhattan, New York's commercial real estate market has lost about $400 billion in value since the start of the COVID-19 pandemic.

New York City is full of panoramic views, but many of its offices are now empty. Office utilization, calculated as the percentage of employees going to them, is only 43 percent, compared to the pre-pandemic level, and on Fridays it drops to 21 percent.

The effect on the economy – $12 billion less spending by these office workers, which is reflected in the closing of stores and restaurants. But the biggest risk is to the capital that has been invested in many of these buildings.

"It started with COVID-19. The most serious consequence has been felt in the value of buildings used for offices. And what we found is that over the last two years, their market value has decreased by about $400 billion," says Stijn Van Nieuwerburgh of Columbia University.

Two-thirds of New York office leases will be up for renewal in the next three to four years. Van Nieuwerburgh says this could present more challenges for the city market.

"This will have consequences for the office market. We anticipate that there will be a decrease of about 40 percent of the market value for offices", he adds.

What will happen to New York City if working from home becomes the norm?

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"I think the worst-case scenario for big cities, including New York, is that employees don't come back to the office. We will have a lot of empty and vacant properties downtown. Where tax revenues are falling, there is not enough money for the city to stabilize the situation. And so we enter a downward spiral, in this cycle of urban punishment", emphasizes Van Nieuwerburgh.

As new research offers a bleak forecast for the commercial real estate market, modern and pricey properties like this one at 425 Park Avenue are being sought after for long-term leases. These buildings offer facilities such as meditation rooms or services such as well-known, Michelin-award winning chefs who provide meals for tenants, as well as a modern coffee bar.

"We are very fortunate that the partners had this vision for this building, because we are attracting more customers, we expect more leases to be signed. Until now, we have leased about 86 percent to 89 percent of the premises", he asserts.

But a handful of such luxury office buildings represent only a fraction of Manhattan's commercial real estate market.

To find a solution, New York City Mayor Eric Adams recently visited an office building in lower Manhattan that was converted into apartments.

"The bottom line is that we need to make it easier for New Yorkers to convert offices, like the one we just visited, into apartments. We're talking about a million square feet of space," says Adams.

With recent efforts to convert offices into housing and New York City's cultural and culinary destinations, there is still hope that the city will attract enough people to survive the long-term effects of remote work. /VoA/