STOP RUSHING TO KILL OFFICE SPACE

IS the Midtown office building half empty or half full? With white-collar workers viewing the five-days-in-person week as optional, property investors terrified of losing billions are trying to persuade the city to let them do something else with their real estate, from casinos to housing. But a half-occupied office building may be worth more to New York.

As the city approaches the third anniversary of COVID lockdowns, Manhattan’s skyscrapers hover around 50% occupancy.

Steven Roth, chief of Vornado, the commercial landlord, told investors this month that as far as the workweek goes, “Friday is dead forever . . . . Monday is touch and go.”

And with some smaller tenants giving up their office space altogether, or taking less space as leases expire, vacancy levels are high and rising. The amount of office space available for rent has increased by half since 2019.

The vacancy rate is a record 22.2%, twice the pre-COVID average, Cushman & Wakefield says. (The city comptroller has taken to calling this the “availability rate,” which sounds nicer.)

Major landlords are giving “the keys back to the bank” on some buildings, particularly mid-aged buildings, as RXR’s Scott Rechler puts it.

Property owners and the investors that lent them money are eager not to lose their shirts, so they want to shrink the office market: less supply of office space, higher prices for what’s left.

At the same time, Manhattan CEOs who walk around their offices and see empty desks are annoyed at having to pay for empty space.

Meanwhile, we need housing and, apparently, casinos.

Not so fast. This is one of those cases where the city’s inertia works in its favor.

First, half empty is not a failure. Getting office workers into Manhattan two or three days a week is a major accomplishment, compared with no days a week.

It’s good for both employers and workers. People benefit from teamwork and in-person meetings on the days they go in and from greater concentration on solitary tasks on the days they stay home.

Cheaper office space is good, from this perspective. If employers respond to people coming in less often by shrinking the square footage each worker has, they’ll just make a miserable office environment. People will go back to staying home when they can or be less productive. With lower office rents, employers face less temptation to do this.

Second, having a core office hub, though dismissed as old-fashioned by urban theorists, is good for New York City.

Office properties paid about $7 billion in annual taxes in fiscal year 2021, mostly property taxes, per the state comptroller. That’s about 11% of total taxes, and does not include the state and city income taxes and sales taxes commuters pay.

A worker who commutes to Manhattan two or three days a week is still legally a New York taxpayer. A worker who stays home and lives in New Jersey or Connecticut at some point will not be.

Plus, converting too much older office space into houses, or casinos, or multistory roller-skating rinks also drives smaller employers away.

Meanwhile, it’s large banks and law firms, the companies with the ability to rent class-A+ space, that are requiring workers to come in four or five days a week.

If we drive away smaller employers, though, we become more dependent on large financial firms, meaning we’re more vulnerable to mass-scale layoffs in a recession.

Finally, the housing part. Office buildings, even smaller ones, don’t convert easily into housing — they have too much windowless internal space.

Developers will need tax breaks to convert units.

But New York already has 60,000 empty rent-regulated apartments available, many because landlords don’t think required renovations for the vacant apartments are worth the rent they can legally collect.

Fixing that problem before spending tens of billions only to lose office space makes a lot of sense.

Plus, converting an old office building to affordable housing here and there doesn’t create a large-enough community to sustain schools, grocery stores and the like.

It worked downtown because they already had a huge residential community, Battery Park City, nearby.

Build too much housing, though, and you make an area unattractive to office tenants.

For now, what we’ve been doing for nearly three years still makes sense: do nothing, and hope that people come back to work more often.