NYC Comptroller: No "Doomsday" Scenario From Vacant Offices

New York City’s fiscal chief wants the Doomsday Trio to take a chill pill.

Three NYC academics— Arpit Gupta of the NYU Stern School of Business, and Columbia University’s Vrinda Mittal and Stijn Van Nieuwerburgh—made a big splash last year when they published a paper that said remote work would slice $50B from the value of NYC office buildings by 2029.

The trio recently updated the paper—entitled Work From Home and the Office Real Estate Apocalypse—and raised their estimated drop in NYC office valuations by 2029 to 44% from the 28% predicted when the paper was first published.

The New York Post went full apocalypse last week in its coverage of the update, reporting that the trio of economists had determined that the Big Apple is in the midst of a “death cycle.”

“Empty office buildings have set New York on an ‘urban doom loop’ that will destroy the quality life in the city and drive residents out,” the lead paragraph of the tabloid’s report declared.

NYC Comptroller Brad Lauder responded on Tuesday with a report that said—in terms of the city’s finances—a 40% drop in office valuations will not have the economic impact of an asteroid that turns into an extinction event for NYC.

Based on Lander’s estimates, it won’t be much more than a blip in a metropolis with a $109B annual budget: the comptroller said a 40% decrease in office valuations in NYC would result in a property tax revenue shortfall of $322M in fiscal year 2025 (which begins in July 2024), a gap that will grow to $1.1B in fiscal 2027.

To put that in perspective, the $322M projected property tax shortfall is half of what the MTA says it lost to fare-beaters jumping the turnstiles on NYC’s subways last year. A shortfall of $1.1B makes up only 3% of the total NYC property tax levy, or 1.4% of city tax revenues.

As if on cue, Lander’s modest tax shortfall estimates coincide with a new report this week from Kastle’s back-to-work barometer which showed occupancy rates in NYC surging up past 50% for the first time this year with a 4.2% jump to 50.5%.

Despite the uptick, there’s no doubt that NYC’s office sector is facing a reckoning: last month, city officials warned that the office vacancy rate in Manhattan—which never topped 11% for decades before the pandemic and now stands at a record 22.7%—will continue to languish above 20% through 2026.

City officials have estimated that more than half of Manhattan’s 450M SF of office inventory is underperforming—meaning competitively obsolete. Asking rents for office space will end the year below pre-pandemic levels—their lowest level in a decade—according to the city’s forecasts.

The amount of office space available for lease in Manhattan topped 94M SF at the end of April, an all-time record, Colliers reported.

However, other CRE sectors in the Big Apple are faring much better: the apartment sector is notching record-high rents, industrial vacancies are holding steady at 1.8%—one of the tightest markets in the US—and the hospitality and entertainment sectors in NYC are benefiting from a big surge in tourism.

There are no signs of a “death cycle” in Times Square, which is brimming with people from all over the world.

If NYC’s three highest-profile economics professors want to study a venue that’s really beginning to resemble an “urban doom loop,” perhaps they should hop on the next flight to San Francisco.