The epidemic is pummeling New York City’s commercial real estate industry, one of its main economic engines, which threatens the nation’s largest business districts, as well as the future of the city’s finances.
The damage caused by the emptying of office towers and the permanent closure of many stores is far more significant, as many experts predicted the crisis soon.
The powerful real estate industry is so concerned that the spread will change long-term changes in workplace culture that it is promoting a striking proposal: to convert more than one million square feet of Manhattan office space into housing .
About 14 percent of office space in Midtown Manhattan is vacant, the highest rate since 2009. On Madison Avenue in Midtown, one of the country’s most affluent retail segments, more than a third of all storefronts are vacant, double the rate from five years ago.
The collapse of commercial real estate is another major burden for New York, as the industry provides a significant portion of the city’s tax revenue.
A key indicator of industry confidence filed for erecting new buildings in the city has fallen 22 percent this year to 1,187, the lowest number since 2010.
By the end of October, only 10 percent of Manhattan’s one million employees were reporting to the office, according to a survey of participation for New York City, an influential business group.
Real estate experts and industry officials said the already bleak picture could be worse.
“It would be fair to say that we haven’t reached the bottom yet,” said James Pahalan, president of the Real Estate Board of New York.
It does not appear that the city’s major commercial landlords are facing a financial downturn, but shares of publicly traded ones have been on a sharp decline since March.
The consequences of the crisis can be seen in the rising tide of litigation between landlords and tenants, even at some of New York’s most guild addresses.
In Columbus Circle shops, a luxury mall in Central Park, the developer has accused a group of high-end retailers, including Michael Kors and Hugo Boss, of discounting more than $ 7 million in rent and fees. On Fifth Avenue, Italian designer Valentino has sued his landlord to free himself from a lease of approximately $ 1.6 million per month.
New York City’s finances – money to pick up trash, park and police repair roads – rely too heavily on the health of the industry.
Property taxes represent the city’s largest source of revenue, and business assets, which account for the largest share of that overall levy, 41 percent, Thomas p. According to Dynapoli, the state comptroller.
According to deputy state comptroller Rahul Jain, commercial property sales declined by nearly 50 percent during October.
A weak commercial real estate market would make it “much harder to bring businesses and the economy back to normalcy,” Mr. DiNapoli said.
Shortage of labor is affecting rents. In Manhattan’s retail corridors, asking for commercial rents has dropped nearly 13 percent since last year, according to this CBRE, a commercial real estate firm. The biggest declines are in areas dominated by office buildings, including Times Square and shopping destinations such as Grand Central Terminal and Soho.
Industry troubles, triggered by the exodus of office workers during the spring stay order during the spring in the state, have persisted, as many passengers have settled in long-term or permanent remote-work arrangements. Tourists have also largely disappeared.
As a result, tensions are rising between the city’s powerful landlords and their equally powerful tenants. Property owners have accused blue-chip companies of using the epidemic to rent out, while tenants portray landlords as greedy and unwilling to accept the economic reality.
“It’s not easy, but we need to make sacrifices, and landlords need to make sacrifices,” said Lawrence Berger, president of Fanzlides Holdings, which owns an athletic headwear store that has its flagship store in Times Square.
The shop has been charged with unpaid rent in excess of $ 511,000 and four other Manhattan shops that were closed for months at a time.
“The amazing thing for us is that in New York, they are renting for a time when we were not allowed to be open,” Mr. Berger said. “We have worked with our landlords across the country except New York City.”
Related landlords, who own shops in Columbus Circle and five of its tenants have been sued, say They have their own financial obligations And the tenants who rent should pay.
The lawsuit does not capture behind-the-scenes, high-stakes negotiations that have led to motions without recourse to the court, William H. Mac. A commercial lawyer At the David David Hutcher & Citron firm in New York.
Mr. Mack is hired by Hugo Boss in an effort to reduce or void his lease in Columbus Circle. “It’s 80 to 90 percent since March and April,” he said.
On the New York Real Estate Board, whose members include almost every major landlord and developer in New York, there is a large potential for systemic changes in work habits.
“Whoever thinks that the way people used the workplace in the past is not going to change is that postpaidemic is fooling itself,” Scott Reichler, president of the Regional Planning Association and chief executive officer of RXR Realty Said, which controls 26,000 square feet of city office space.
Employers have discovered that productivity does not necessarily suffer in the absence of shared work space, and smaller office footprints and more generous work-from-home policies can make sustainable economic sense.
As a result, the landlord group proposes that the city and state allow developers to more easily convert Manhattan and Borough offices into residences.
According to Cushman & Wakefield, a real estate brokerage, Manhattan’s 400 million square feet of office space is thought to have an average quality of about 140 million. The real estate board puts the city’s supply of those buildings at about 210 million sq ft.
The real estate group estimates that converting just 10 percent of that office space into residential will create 14,000 apartments, including 10,000 in Manhattan – a city with a substantial amount of adequate housing, especially a small number of affordable homes Amount.
The board said any necessary changes to any conversion would require that some portion of the new dwelling be set aside.
Mark A. Willis, senior policy fellow at New York University’s Furman Center for Real Estate and Urban Policy, said that prior to the epidemic, there was a job increase outpacing Housing development in the city increases demand for distant supplies and the city’s persistent housing shortage.
Mr. Willis said, “It is a great idea for me to facilitate the reuse of buildings to adapt to the changes in the economy.”
Some tenants are using the current recession – and resulting lower prices per square foot – to trade for good office space, the board said. This is a boon for high-end office landlords, but may be sick for landlords of lower-level buildings.
Changing office buildings for homes would not only provide landlords a potential financial lifeline, but would also benefit retailers, the Real Estate Board argues, because the presence of office users during the day and apartment dwellers at night There will be an increase in foot traffic.
There is no reason, they argue, for Midtown to maintain its position as New York’s last head office, bustling during the day but quiet at night.
They cite the success of Lower Manhattan, which has transformed almost exclusively from the office district into a vibrant residential neighborhood in recent decades.
The proposal would require changes to zoning and density regulations that would have to be approved by the city council and state legislature and would be embraced by the mayor and governor.
Andrew M. of Govt. The Cuomo office would only say that it would review the idea.
A spokesman for Mayor Bill de Blasio, who is term-limited and about to begin his final year in office, welcomed the housing proposal.
“City Hall is always looking for sensible, similar ways to give more housing,” said the spokesman, Bill Nehardt.
Nevertheless, it is not easy to convert office space into apartments. Landlords will still need to wait for the buildings to be vacant, which can take years.
The landlord group says the city and state should help increase zoning restrictions requiring manufacturing in areas such as the apparel district, changing density requirements to create new tax breaks for bar apartments and homeowners is.
Whether city and state elected officials will defeat a measure that will help real estate developers when so many tenants are struggling is an open question.
Many candidates wishing to succeed Mr. de Blasio have refused to take campaign donations from real estate developers.
Nor is it clear how many landowners will actually take advantage of the proposed changes.
Jeff Gural, who controls a large portfolio of aging buildings in Manhattan, said he would continue to be engaged in his current work.
“We don’t have that much free space to start,” Mr. Gural said. “And I believe we will have a demand for that kind of place.”
Another possible source for the expansion of housing would be to convert to hotels, many of which industries have shut down as tourism and business travel have declined.
The idea is gaining traction among some developers and affordable housing advocates. A group that is trying to shape the 2021 mayoral debate, United for Housing, will argue in an upcoming report that the next mayor should prioritize converting hotels into permanent supportive and affordable housing.
According to the real estate board proposal, some housing advocates say the epidemic is an opportunity to come up with a constructive way to alleviate the city’s housing crisis.
Brenda Rosen, president and chief executive officer of Breaking Ground, said, “We need a comprehensive plan to bring new housing resources and the idea of converting residential buildings into residential,” the state’s largest provider of supportive housing.