New York’s recovery from the pandemic reached a milestone last week when city office occupancy topped 40% for the first time since the March 2020 shutdown.
The closely watched Kastle Back to Work Barometer increased to 41.2% last week, up almost five percentage points compared to the week of May 30 to June 3. The security company Kastle Systems measures office occupancy via entries into thousands of private office buildings in 10 cities, including New York.
The new office occupancy numbers, and trends throughout the pandemic, are available on THE CITY’s new How’s New York City Doing? dashboard and will be updated there each week.
The uptick coincides with stricter in-person policies from large companies. Citicorp, for example, increased the number of required days in the office from two to three beginning in June. But it isn’t clear if it is a one-time jump or part of a continuing trend.
“This is good news for our city’s recovery as the presence of office workers in the central business district is critical for retail, restaurants and other storefront businesses hit hard by the pandemic,” said James Whelan, president of the Real Estate Board of New York. “ As the public health situation continues to improve, policymakers must continue to focus on smart solutions that will bring new public and private sector investment into our urban centers to make them more resilient, equitable and vibrant.”
The impact of low office occupancy on commercial real estate and its implications for tax revenue are crucial for the recovery, noted a recent economic update from City Comptroller Brad Lander.
“New York City’s commercial office space vacancy remains stubbornly high and is relatively unchanged compared to a year ago, as the shift to remote/hybrid work schedules continues to unfold,” the report said.
Both the city’s direct vacancy rate of 16% and sublease vacancy rate of 5% outstrip the vacancy rates of the 1990s recession, 2001 downturn and 2008 financial crisis eras, the comptroller’s report found.
More than 120 million square feet of office space has remained vacant ever since the first quarter of 2021 and shows no signs of being reduced. As of June 1, average asking rents of $65 a square foot represented a decline of 30% from the $90 being demanded in 2019, according to Lander’s report.
If the situation does not improve, the comptroller estimates, the decline in office values this year could cost the city as much $600 million in property taxes annually. Property taxes are normally the city’s most stable revenue source.
Nationally, office occupancy hit 44% last week, also a post-pandemic record. Austin, Texas, boasts the highest percentage of in-office workers at more than 60% followed by Houston and Dallas. Chicago and Los Angeles reported about the same percentage as New York. San Francisco has the lowest occupancy of any major city in the nation, at just over 31%.
