As remote and hybrid work trends have remained sticky since the pandemic’s onset, office markets in major metropolitan areas still struggle to amp up their occupancy levels. In Manhattan, the change in work schedules is impacting more than office building owners, it’s reverberating throughout the entire commercial real estate ecosystem.
Like many other cities, New York significantly depends on property taxes to pay for services like schools, police, and fire departments. The majority of the city’s income comes from property taxes, which account for $1 out of every $3 in receipts. And of that, offices make up around 5 percent. Tax levies from the area fell by 11 percent to $5.24 billion in the first fiscal year that accounted for the effect the COVID-19 had on real estate. Tax bills for this year indicate a modest uptick in office building revenue citywide, but the recovery may not materialize for years, particularly if tenant demand continues to remain stagnant.
Obsolete structures have an impact on the entire regional economy. Restaurants and other street-level businesses that relied on daytime worker flow have closed as a result of empty offices. Plus the fact that transit systems, retail, and hotel industries are other significant economic sectors that are impacted by office utilization. Additionally, declining property values result in lower property tax collections for the city. A tax on large commercial leases, which brings in roughly $1 billion a year for New York, might be reduced if demand from major office tenants remains stagnant. As office vacancy rates were much higher in the U.S. compared to similar markets in Asia and Europe at the start of the pandemic, that deficit is posing a slower recovery. A prolonged dip in demand only spells more bad news for the city’s entire infrastructure, since that translates to less tax dollars flowing in.