Home office was more rather than less this year in the USA, plus inflation and a gloomy year for the tech industry, which is so important. All of this caused the prices for offices – even in the best inner-city locations – to plummet. The young generation of employees in particular made it clear that the option of working from home is more important to them than keeping a job. Especially when there is currently an abundance of these and employers often fight desperately for their employees – or have to accommodate them, for example with home office.
As a result, offices remained empty – many companies reacted and downsized them. According to a report by CommericalEdge, the US office vacancy rate was 16.3 percent at the end of October – 1.5 percentage points higher than the year before. And in the previous 12 months, vacancies increased in 86 of the 120 cities surveyed. In the 25 most important markets for office technology, there were even 22, according to the provider of software and data for real estate companies. According to Bloomberg, offices in New York and other metropolitan areas are only about 40 percent occupied – and this will remain the case for some time to come.
A problem as an opportunity
The problem for some is of course 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 high-rise office buildings in New York and convert them into residential buildings. The company, which rented the World Trade Center towers destroyed in the terrorist attacks of 9/11 and then built the new complex there, is currently looking for further investors.
Silverstein Managing Director Marty Burger says he wants to buy up older office towers in Manhattan that have high vacancy rates or are burdened with high debts. Similar projects are also being considered in other US metropolises such as San Francisco, Los Angeles, Washington DC and Boston.
“Huge Market”
Silverstein has already bought its first office tower south of Wall Street this year. The conversion to apartments is scheduled to begin next year. It’s a “huge market,” Burger said with conviction. In fact, in parallel with the shrinking of rented office space, the prices for apartments have skyrocketed. According to the Bloomberg business agency, rents in Manhattan reached a new record level this year.
It’s a really difficult time to rent offices, at the same time the housing market is “very hot”. Hopefully some of these office buildings can be bought and converted for residential use. “The city needs that urgently.”
pressure will continue to rise
The pressure on US real estate companies that specialize in office space is likely to increase in the coming weeks and months: Many companies, especially in the tech sector, which is currently shedding tens of thousands of jobs, are radically cutting back on office space. Many contracts expire at the turn of the year and have 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 the – quite complex and often years-long – conversion into apartments can therefore rightly hope for comparatively cheap purchase prices.
The value of office buildings in the US could drop by up to 39 percent, the New York Times reported, citing a joint study by Columbia and New York University.
Important source of income for cities
Vacancies could soon become a problem for cities. 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 USA. Many real estate companies have already applied for a reduction. In cities that recalculate the wealth tax annually, the number of such applications is up to 40 percent higher than in an average year before the pandemic, according to the Wall Street Journal.
In return, cities are likely to raise taxes on apartments in order to plug – in the worst case fatal – budget gaps. The fact that living in the downtowns of US metropolises is becoming more popular again, especially among young people, could also help to slow down, if not reverse, the decades-long trend towards the segregation of work – in the city center – and living in suburbia. The US 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 business people 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 office district in the city center.
Last but not least, it would be a return to the old status quo that applied before the industrial revolution and is now considered desirable again: namely that working, living and leisure time are interwoven in city centers.