19% office building New York City vacant as experts say the city faces biggest crisis since 1970s

Almost 19 percent of office in New York City remain completely empty despite coronavirus restrictions being lifted more than two weeks ago and easing starting months earlier. 

Although many companies have either called or are preparing to request workers to return to their offices, the amount of space available to be leased to firms is at an all time high.

The figure illustrates just how remote work has quickly become the norm for many would-be office workers – while also having the effect of sending the city’s commercial real estate industry into turmoil.

Paradoxically, the surge in the amount of office space comes with a parallel surge in Manhattan residential real estate prices.

The median resale prices for Manhattan apartments hit $999,000 in the second quarter – an all-time high since before the COVID-19 pandemic hit – according to the report from Douglas Elliman and Miller Samuel. 

Average sale prices in the borough rose 12% in the quarter, surpassing $1.9 million.

When it comes to office space, before the pandemic, some 1.6 million people would commute into the city every day. Their presence helping to keep other businesses afloat with everything from shop and restaurants to  theaters feeding off the back.

The amount of available space has only increased since the end of 2020 when 15 percent was available to be leased. That number has since jumped to 18.7 percent according to Newmark, a real estate services company.

In Downtown Manhattan, the number is even higher with 21 percent of offices without tenants.  

With more employers allowing their workers to remote work for at least a portion of the working week, companies are now recalculating the amount of space they need and looking to reduce their square footage in a bid to save costs.    

Many New York employers are offering greater flexibility to their work force, allowing at least some remote work even as the pandemic recedes and recalculating their space needs.  

‘This is as close as we’ve come to that type of scenario where there’s an exodus from the city, and the recovery took 30 years,’ said Kathryn Wylde, president of business organization Partnership for New York City, to the New York Times. 

‘The city has to attract people for reasons other than going to the office,’ Wylde added.

Wylde likens the exodus to what was experienced in the 1970s, when half of the city’s 125 Fortune 500 companies moved out as the Big Apple fell into a financial crisis.

The situation is unlikely to resolve in the short term with a third of leases in large Manhattan buildings set to expire in the next three years according to CBRE with many indicating they won’t need as much space when the time comes to renew.

The amount of available space is also set to increase as new construction projects which were started pre-pandemic, add a further 14 million square feet of office space to the books.

New York’s situation appears to be unique with other cities including Atlanta and Los Angeles showing far more positive indicators that workers have returned to the office. 

Some 24.1 percent of offices in Los Angeles are without tenants with a 21.9 percent vacancy rate in Chicago, but both cities already had high rates before the pandemic begun at 18.1 percent and 15.5 percent rate respectively.

‘The other cities have become more competitive as a result of the pandemic and the whole remote-work phenomenon,’ Wylde said. ‘It’s going to require a real shift in public policy toward focusing on quality of life, a positive business climate and affordability.’ 

Of course, just how quickly offices fill back up will depend on how strict companies are with their workers. 

Large tech companies with offices in New York, San Francisco, Seattle and elsewhere – such as Spotify, Facebook, Microsoft, Twitter, Salesforce and Amazon are extending their work-from home policies – some permanently.

But not everyone is on the work-from-home bandwagon: David Solomon, chief executive of Goldman Sachs, has said he wants employees back in the office as soon as possible. And Citigroup executives have said they worry about workers’ productivity if they’re not brought back into the office eventually.

But their voices seem muted among the stampede of companies – many of them newer and tech-focused – that have unchained employees from their desks.

Music streaming giant Spotify has told its 2000-strong US workforce they can work from anywhere in the country.

Spotify has a 17-year lease on 16 floors of No. 4 World Trade Center in New York which costs the company $2.8m per month.

Under the company’s recently-announced ‘Work from Anywhere’ policy, staff can elect to live anywhere in the US while still being paid their ‘New York’ salary, explaining: ‘Effectiveness can’t be measured by the number of hours people spend in an office’.

Facebook leases more than 2.2 million square feet of office space for its thousands of employees in New York. It took over the lease of an entire building, the James A Farley Building, in Midtown last August.

However, it, too, has signaled that its employees could continue to work remotely indefinitely. 

Jamie Dimon, JP Morgan Chase’s CEO, has been firm on his position – he wants at least 90 percent of staff back in the office, with only 10 percent or so continuing to work from home. In the case of his company, that account for 25,000 people around the world working remotely, and some 200,000 working in the office.

Morgan Stanley CEO James Gorman, last monthm was among the firms to take a tough stance. He warned staff to be back in the office by Labor Day, or there’ll be tough conversations. 

Gorman made it plain to the staff from the bank’s Times Square office: Get back by Labor Day or there’ll be tough conversations.

‘I’ll be very disappointed if people haven’t found their way into the office…then, we’ll have a different kind of conversation.

”If you want to get paid New York rates, you work in New York. None of this, ‘I’m in Colorado and work in New York and am getting paid like I’m sitting in New York City’. Sorry, that doesn’t work,’ Gorman said.

‘Make no mistake about it – we do our work inside Morgan Stanley offices, and that’s where we teach, that’s where our interns learn, that’s where you build all the soft cues that go with building a successful career that aren’t just about Zoom presentations.

‘When will that occur? My leadership style has been very deliberate. I went from one day a week from July to Labor Day last year, two days Labor Day until the end of the year, three days the beginning of this year until March and now I am at four days. 

‘I’ll be very disappointed if people haven’t found their way into the office…then, we’ll have a different kind of conversation. 

‘If you can go into a restaurant in New York City, you can come into the office. We want you in the office,’ he said. 

At the end of May, only 12 percent of office workers in Manhattan had returned to their desks, although more than 60 percent are estimated to return after Labor Day.   

According to estimates from Unacast, a location analytics company, a net of 70,000 people fled the metropolitan region at the height of the pandemic, resulting in roughly $34 billion in lost income.  

About 3.57 million people left New York City last year but thanks to widespread vaccination and coronavirus positivity rates dropping, that’s swiftly changing.  

Crowds are swarming Manhattan sidewalks, parks, bars and restaurants at growing rates.

Within recent weeks, New York City has witnessed a liveliness not witnessed since the before the pandemic.