How many office buildings are empty in NYC?
Despite an uptick in the number of people returning to work in person, New York City’s office buildings are increasingly facing financial difficulties. Data from CoStar, a provider of commercial real estate information, shows that the delinquency rate for office buildings in Manhattan rose sharply from 0.57% in January 2023 to 6.28% in January 2024. This marks the most prolonged increase in delinquency rates since 2019, with previous peaks reaching 9.18% in February 2021 and 10.91% in March 2021 before dropping back to 1.25% by April 2021.
The delinquency rate’s rise over tenfold from January 2023 to January 2024 signals potential turbulence ahead for the real estate market in the city. Additionally, the vacancy rate for Manhattan office spaces remains high, hovering over 20%, with recent figures from Cushman & Wakefield placing it at 22.8%.
Stuart Saft, a seasoned real estate lawyer and partner at Holland & Knight, highlighted the abundance of vacant office spaces. With decades of experience working with developers and lenders, Saft now frequently hears concerns from clients about reduced tenant occupancy, which translates into lower revenue streams. This drop in income arrives at a particularly challenging time as interest rates on commercial real estate loans are considerably higher than in previous years.
Given the hundreds of billions of dollars in office loans due for renewal this year, building owners now face tough decisions. Saft expressed concern about the substantial debt looming over these properties, with critical financial obligations coming due through this year and into 2025.
Delinquency in loan payments can lead to various outcomes, ranging from missed payments to foreclosure scenarios where building owners might surrender their properties to lenders. Saft pointed out that lenders are particularly anxious about potentially reacquiring these buildings.
The architecture firm Gensler’s Robert Fuller also noted an increase in communications from lenders. These discussions often focus on properties believed to become distressed or heading towards distress.
Amidst these challenges, some see potential for opportunity. For instance, Silverstein Properties’ former CEO Marty Burger discussed a $1 billion fund aimed at converting vacant office spaces into housing. During a conversation with Spectrum News NY1, Burger revealed that the fund was evaluating numerous buildings for potential conversion, particularly those in foreclosure.
The concept of converting office spaces into residential units is gaining traction, as evidenced by the 2,609 apartment units currently being converted in New York City, according to RentCafe. Veteran architect Joseph Pell Lombardi confirmed the growing interest in conversions, noting an unusual surge in inquiries from lenders about the feasibility of such projects.
However, legal and regulatory hurdles remain a significant barrier. Saft explained that zoning laws often prevent potential conversions, a challenge he has frequently encountered with clients. Despite proposals from Mayor Eric Adams to amend zoning laws to facilitate more conversion projects, substantive changes have yet to be implemented.
As the landscape of New York City’s office real estate continues to evolve, stakeholders are navigating a complex matrix of financial pressures, legal constraints, and market opportunities. The city’s ability to adapt to these challenges will likely shape its economic and architectural landscape in the years to come.
