Home office has been more than a minus this year in the US, plus inflation and a dismal year for the technology industry that is so important. All of this has sent office prices – even in the best downtown locations – plummeting. The younger generation of employees, in particular, have made it clear that the option to work from home is more important to them than holding down a job. Especially when there are currently an abundance of these and employers are often desperately fighting for their employees – or have to accommodate them, for example, with a home office.
As a result, offices remained empty – many companies reacted and downsized. According to a report by CommericalEdge, the office vacancy rate in the US was 16.3% at the end of October – 1.5 percentage points higher than the previous year. And in the previous 12 months, vacancies increased in 86 of the 120 cities surveyed. In the top 25 office technology markets, there were as many as 22, according to the real estate software and data provider. According to Bloomberg, offices in New York and other metro areas are only about 40% full – and that will remain so for some time.
Getty Images/The Image Bank RF/Siegfried Layda WTC Memorial and One World Trade Center built by Silverstein
A problem as an opportunity
The problem for some is, obviously, the opportunity for others: the New York real estate company Silverstein Properties wants to invest one and a half billion dollars (1.4 billion euros) in the purchase of office skyscrapers in New York and convert them into them in residential buildings. The company, which leased the World Trade Center towers destroyed in the September 11 terrorist attacks and later built the new complex there, is looking for new investors.
Silverstein managing director Marty Burger says he wants to buy older office towers in Manhattan that have high vacancy rates or are saddled with high debt. Similar projects are also being considered in other US cities such as San Francisco, Los Angeles, Washington DC and Boston.
“Big Market”
Silverstein already bought its first office tower south of Wall Street this year. Conversion to apartments is expected to start next year. It’s a “huge market,” Burger said with conviction. Indeed, in parallel with the shrinking of rented offices, apartment prices have skyrocketed. According to the Bloomberg business agency, rents in Manhattan reached a new record this year.
It is a very difficult time to rent offices, at the same time that the real estate market is “very heated”. Hopefully some of these office buildings can be purchased and converted for residential use. “The city urgently needs this.”
Getty Images/Howard Kingsnorth Looking across Central Park towards the southern tip of Manhattan
pressure will continue to rise
The pressure on American real estate companies specializing in offices is likely to increase in the coming weeks and months: many companies, especially in the technology sector, which is currently eliminating tens of thousands of jobs, are radically reducing office space. Many contracts expire at the turn of the year and need to be renegotiated. Prices are also rising due to inflation, which makes it even more attractive for companies to save on office expenses. Silverstein and others who rely on conversion – quite complex and often years – into apartments can therefore expect comparatively cheap purchase prices.
The value of office buildings in the US could fall as much as 39%, reported the New York Times, citing a joint study by Columbia and New York University.
Important source of income for cities
Vacancies could become an issue for cities soon. If the value of office buildings falls, the corresponding wealth tax must be reduced. The wealth tax is the most important source of income for municipalities in the US. Many real estate companies have already requested a reduction. In cities that recalculate the wealth tax annually, the number of such applications is up to 40% higher than in an average pre-pandemic year, according to the Wall Street Journal.
Getty Images/mikroman6 A vintage look at New York: Broadway and Fifth Avenue at Madison Square
In return, cities are likely to raise apartment taxes to fill – in the worst case, fatal – budget gaps. The fact that inner-city living in American metropolises is becoming popular again, especially among young people, could also help to slow down, if not reverse, the decades-long trend of segregation of work – in the inner city – and life in the suburbs. The American economist Richard Florida was already convinced in the summer: “The city center is not dying, it is changing”.
According to the New York Times, officials and entrepreneurs from New York, Chicago, Philadelphia and Seattle have met several times in recent weeks to exchange ideas for business development at the initiative of the Brookings Institution – and downtown business district.
Last but not least, it would be a return to the old status quo that prevailed before the industrial revolution and is now considered desirable again: namely, that work, life and leisure are intertwined in city centers.