What to do about the vacant offices that are slowing NYC’s economic recovery
By Joe Connolly and Neil A. Carousso
NEW YORK (WCBS 880) — Traffic volume into Manhattan soared after Labor Day as many companies began requiring employees to be in the office at least three days a week and Wall Street firms, including JP Morgan and Goldman Sachs, nixed remote work altogether. Still, many office buildings remain mostly empty.
Office occupancy in New York City was just 38 percent last week, according to Kastle Systems, which tracks building swipes. That’s a 3.5 percent increase from the last week of August when many white collar workers ditch their business suits for bathing suits down the Shore or out East in the Hamptons.
“This could be a 10 to 20 year painful process where we have vacant buildings that were once assets to our communities, now, will be liabilities unless we put policies in place that streamline the approval process to convert these buildings and provide economic incentives to help facilitate that,” said Scott Rechler, chairman and chief executive officer of RXR, on the WCBS Small Business Spotlight, sponsored by Dime Community Bank.
Rechler, who sits on the boards of the New York Federal Reserve and the MTA, points to New York’s recovery from 9/11 when rezoning enabled many office buildings in Lower Manhattan to be converted to apartments.
“If we can do that, we could take that, you know, 10 to 20 year period and bring it down to a five to 10 year period.”
The real estate developer said those conversions will allow buildings to be competitive in a post-pandemic environment.
“Buildings that can provide the highest level of experience and engagement and what we call ‘third spaces’ where people can collaborate and bond and become parts of broader communities will actually thrive. But, buildings that are more commodity-like – class B buildings, class C buildings that aren’t close to public transit – frankly are going to become obsolete,” said Rechler.
RXR is looking at converting some of their Manhattan office buildings into mixed-use buildings where New Yorkers can work and live, which Rechler calls part of the “post-pandemic playbook” to attract more workers to the city.
“If you look at our multi-family portfolio – and we have 10,000 units of multi-family – we’re 99 percent occupied,” he said. “I’m optimistic because the people is (sic) the fuel that drives the long-term vitality of this economy and they’ve come back.”
He told WCBS 880 the next step is for real estate developers, like himself, to create affordable housing to attract more talent to the five boroughs. A lack of housing inventory has led to an increase in home prices and rents. Rents in RXR buildings, Rechler said, are 10-20 percent higher than they were before the pandemic.
New office buildings now include amenities such as health and wellness spaces to incentivize employees to work in-person.
The firm is also noticing companies headquartered in Manhattan are opening satellite offices in their buildings on Long Island and New Jersey.
“Companies want to have spots that are closer to where people live both for affordability and convenience,” Rechler said. “So you see a number of banks, for example, have opened up offices in New Jersey or some of the pharmaceutical companies and the same thing we’re seeing in Nassau County.”
“That will enable people to live closer to home and have a shorter commute for part of the week or the whole week, depending where they are, but still be able to convene in New York City with all their peers where you can focus on culture building, ideation, collaboration, that you can’t get if everyone’s working independently.”
Rechler sees the city is transitioning from a Manhattan-centric economy to what he calls a “superstar region,” which he believes will be more sustainable post-pandemic.
See more on the future of the office on the Small Business Spotlight video above.