Manhattan's office market is DOA. The sad future for others?

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Midtown Manhattan With Fewer Office Workers: Imagining the Unthinkable

New York officials face the reality that the district’s economy might never be the same

Foot traffic in Midtown hasn't returned to pre-pandemic levels. An estimated 2.6 million people worked in Manhattan in 2019.

By Kate King , Roque Ruiz and Konrad Putzier, WSJ

March 22, 2022 5:30 am ET

People want to live in Manhattan as much as they ever have. The problem is that not enough people want to work there.

And for Midtown Manhattan, a neighborhood built on the five-day-a-week commuter, that is a problem so momentous that after decades as the dominant office district in the country, real-estate developers and city planners are trying to imagine what else it can offer.

On the residential side, Manhattan apartment rentals are booming and sales are reaching record levels. But offices in Midtown are attracting barely one-third of their pre-pandemic workforces.

“There’s no question that Midtown is going to have to reinvent itself,” said Chris Jones, senior research fellow at the Regional Plan Association, an urban-planning group.

Tourism, upgrades to public transit and more dynamic, pedestrian-centered streets would help Midtown attract the people it needs, Mr. Jones said. “The transition is going to be hard. It’s going to be hard on small businesses and low-wage workers that don’t have the resources to adapt,” he said.

With offices struggling, city and state officials are discussing revamping New York City zoning to allow for more housing, including in Midtown. After Sept. 11, government subsidies helped lure people to lower Manhattan, where officials had moved to convert unused office space into apartments even prior to the terrorist attacks.

Planners, however, are skeptical that Midtown could or should look to housing to save the neighborhood. Many Midtown buildings have large footprints and can’t be converted into apartments as easily as the narrower buildings downtown were starting in the 1990s.

The newly opened Pebble Bar in Rockefeller Center aims to be less reliant on office workers.

PHOTO: NICOLE FRANZEN/PEBBLE BAR

In some ways, Midtown is already looking a little bit different. Pebble Bar opened a few weeks ago in Rockefeller Center and was designed to be more upscale and intimate than other Midtown happy-hour spots, said managing partner Julian Brizzi. The bar serves seafood, not Buffalo wings, and aims to be a place where people come to linger rather than gulp down a beer on their way to catch the train, he said.

“We always envisioned that it would be a hedge against any sort of fluctuations in volume between in-office or remote work,” Mr. Brizzi said. “It was always our intention to operate a business in Midtown that wasn’t reliant on the fact that people were forced to go there to go to work.”

Midtown’s survival is critical for Manhattan, which was home to nearly 11% of all office inventory in the U.S. last year, according to an October report by New York state Comptroller Thomas DiNapoli. In 2019, the office sector employed 1.6 million people—a third of all New York City jobs—and contributed two-thirds of the city’s gross product.

Office availability in Manhattan, a measure of vacancy and space about to be vacated, reached a record-high 17.4% in February, according to real-estate firm Colliers. Manhattan offices are currently less in demand than they were after the terrorist attacks of Sept. 11, when some wondered whether people would ever feel safe working in skyscrapers again.

Manhattan was home to one of the world’s biggest and busiest office districts before the pandemic, with a daytime workforce larger than the entire population of Houston. An estimated 2.6 million people worked in the borough three years ago, 70% of whom commuted in from other parts of the city or its suburbs, according to the Department of City Planning.

Source: MTA; NYC Open Data (shapefiles)

Now, after two years of remote work, the formerly bustling Midtown office district feels more than a little hollowed out. A peek inside office towers reveals floors of vacant cubicles. Once-packed commuter trains arrive at Grand Central Terminal and New York Penn Station with ridership at less than half of pre-pandemic levels. Restaurants, bars and shops that depended on heavy foot traffic have gone out of business.

In New York, and other cities across the country, it’s becoming clear that even when people feel safe going out to eat or shop, most don’t want to return to their daily commutes.

New York City Mayor Eric Adams and New York Gov. Kathy Hochul have prodded employers to bring their workers back, but to little effect. Keycard swipes tracked by security company Kastle Systems show that Midtown offices barely cracked one-third of their pre-pandemic workforces in the first two weeks of March, despite falling Covid-19 infection rates.