After Covid, New York and other cities are weighing whether to convert empty office buildings into affordable housing.
NEW YORK — To see how the Covid-19 pandemic has changed America’s downtowns, all you have to do is stand in the subway station at Times Square on a weekday morning.
Beneath one of the most iconic intersections in America, trains pull in just a few minutes apart, but even at the height of rush hour they are only half full. The platforms and maze of stairs that lead to the exits are sparsely filled; a stall that sold newspapers and magazines, cigarettes, and soft drinks is shuttered.
On the streets above, the continued toll of the pandemic is apparent. A former Pret A Manger sandwich shop and Duane Reade pharmacy are available for rent; inside, the spaces are hollowed out but still bear their former logos. At a nearby Starbucks that before Covid routinely saw long lines, just a few people wait to place orders.
“Last year there was nobody in the streets, now maybe 20 percent are coming back,” a halal cart vendor named M.D. Alam told me. Alam said he has been operating the cart for more than a decade on Sixth Avenue near Bryant Park, a short walk from the Bank of America tower, Rockefeller Plaza and other major office buildings. “It’s not like it was before.”
In Times Square and the rest of midtown Manhattan, the office buildings that once fueled much of the area’s activity are still well below pre-pandemic occupancy. Only 28 percent of Manhattan office workers had returned to their desks as of late October, according to a survey from a prominent business consortium, the Partnership for New York City, and just 8 percent were back five days a week. A commanding majority of employers — 80 percent — said they expected a permanent change in their remote work policies, the survey said, while a third anticipated they would need less office space in the next five years.
Pandemic-induced changes in work patterns have taken an especially acute toll on the central business districts of cities — ecosystems that rely on a daily flood of office workers who frequent coffee shops and lunch spots, stop at restaurants and bars after work, and drive public transit ridership. In New York, where office buildings account for a major share of the city’s property taxes, the pandemic has also induced a $28.6 billion drop in taxable market value and cost the city upwards of $850 million in tax revenue.
In Times Square and the rest of midtown Manhattan, the office buildings that once fueled much of the area’s activity are still well below pre-pandemic occupancy. | Justin Heiman/Getty Images
These impacts pose an existential crisis of sorts for office-centric neighborhoods, and significant consequences for the cities that contain them. Recent studies have suggested remote work will endure. One paper predicted 20 percent of full workdays would occur from home even after the pandemic ends, compared to just 5 percent pre-Covid. The same study said this shift will reduce spending in major city centers by at least 5 to 10 percent compared with pre-pandemic levels.
The upshot is that some commercial space will likely be left vacant long term — at the same time major cities like New York are struggling with a lack of affordable apartments. That has led real estate groups, urbanists, market experts and others to consider whether Covid has created an opportunity to reinvent areas like midtown Manhattan, particularly with new housing. The idea is not without logistical and political challenges, but proponents say it could help breathe new life into areas emptied out by the pandemic.
“Landlords are being very creative trying to improve their buildings, amenitize their buildings, improve the air quality systems,” said Peter Riguardi, chair and president of real estate services firm JLL’s New York tri-state region. “But at this point, without any unforeseen change, there’s still going to be some empty [office] space when we cycle through this, and some of those buildings are going to be ripe for conversion to residential.”
James Whelan, president of the Real Estate Board of New York, said he thinks it’s “inevitable” some portion of the city’s commercial office market, particularly older buildings, “may not be reutilized as commercial office space moving forward.”
How those buildings will be used, and how that transition will occur, will shape America’s cities for decades to come.
High-cost cities like New York, San Francisco and Washington have seen rents rise far faster than incomes over recent decades, and many residents are spending more and more of their monthly paychecks on housing. The problem has been especially acute for poorer households: One recent study found a worker earning New York state’s minimum wage of $12.50 per hour would need to work 94 hours a week to afford a one-bedroom apartment at market rates.
Meanwhile, efforts to build new housing — particularly in prime neighborhoods with sought-after amenities — are routinely met with fierce and sustained pushback from existing residents. In cities where construction costs are high and undeveloped land is both scarce and expensive, where to build new housing and how to finance it have proven to be intractable questions for policymakers.
In New York, Manhattan is the center of jobs, transit and many of the city’s major cultural landmarks, making many neighborhoods within it attractive places to live. But the borough has some of the highest land costs in the city, and much of it is already built out — making empty commercial space a unique opportunity.
“[If an] owner doesn’t see any economic value in investing in a property in order to keep it marketable and maintained as competitive office space, then I think there’s a tremendous opportunity for those buildings to be converted into affordable housing,” said Brett Meringoff, managing partner at the developer Fairstead, which constructs affordable housing and is converting a former hotel into apartments on Manhattan’s Upper West Side.
“[Conversions] can be very costly to get done, but the truth is, all of this is costing a lot of money — construction costs are going up, land is scarce, they’re not making any more land on Manhattan,” Meringoff said. “We have to get more creative and find new ways to get access to units or property that can become affordable housing.”
As cities struggle with a shortage of housing, business districts continue to face a shortage of another kind: people.
In midtown Manhattan, business owners say the steep decline in foot traffic since last March has been devastating for their bottom lines, and some local groups see an influx of residents as one answer.
Cestero doesn’t think conversions will ever become a major producer of affordable housing for the city, but still thinks there is an opportunity to create targeted tax incentives and financing mechanisms that can help landlords pursue such efforts where it makes sense to do so. While incentives to help property owners pursue conversions should include an affordable housing requirement, he said, it’s unlikely that a project with exclusively income-restricted, affordable apartments would pencil out.
“Ultimately, I think the principle that we should all agree on is that in a world where we're going to have much more remote work, mixed-use communities where people live and people work are likely to be more vibrant and engaging and the kind of communities that New York wants,” he said. “But it's going to take time and it's going to happen over many, many years.”
Read more on Politico.
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