The atrium at 60 Wall Street was once a thoroughfare for thousands of Deutsche Bank AG employees.
(Bloomberg) — The atrium at 60 Wall Street was once a thoroughfare for thousands of Deutsche Bank AG employees.
These days it’s eerily quiet even during rush hour on a weekday morning. The occasional pedestrian crosses between Pine Street and Wall Street, the cavernous space utilized as a subway exit or a place to nap at one of the unused bistro tables.
The 47-story skyscraper, owned by Singapore’s sovereign wealth fund and Paramount Group, has sat empty since 2021, when Deutsche Bank — its only tenant — relocated to Columbus Circle. The owners are using the opportunity for an expensive renovation in a bid to lure new tenants looking for an updated space.
So far, there haven’t been any takers, as financial firms either seek out shiny new digs in Hudson Yards, or shrink their footprints altogether with the option of work from home amid a slow deal environment.
It’s contributing to unprecedented amounts of unused office space in New York. Vacancies reached a record 22.7% this year, after decades of an average rate that never surpassed 11% a year. The city’s budget experts say the vacancy rate won’t dip below 19% before at least 2026.
While New York is showing signs of bouncing back from the pandemic — residential rents are surging, tourists are back and the lines at Sweetgreens are long again — offices remain a laggard, particularly in Lower Manhattan.
Paramount didn’t immediately respond to a request for comment.
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Asking rents for office space will “end the year below pre-pandemic levels” and probably hit their lowest in a decade, according to the city’s latest forecasts. Asking rents in Manhattan offices averaged $75.13 per square foot in April 2023, down 50 cents from a year prior, according to Colliers.
It’s a worry for city officials, who for the last decade have relied on an ever-expanding commercial real estate sector for taxes to pay for schools, cops and trash collection. Commercial property taxes contribute about 20% of the city’s total tax revenues — with office buildings, specifically, contributing 10%. And as those revenues are flattening, the city’s expenses are forecast to keep growing, creating challenges for Mayor Eric Adams’s agenda.
In the eight years before the pandemic, tax revenue grew an average of 4.7% per year, roughly matching city-funded spending, according to Ana Champeny, the vice president of research at the Citizens Budget Commission. That enabled former Mayor Bill de Blasio to hire thousands of new employees and expand city-funded programs without having to consider layoffs or cost-cuts to balance the budget.
“It all goes back to all the people who say that de Blasio was the luckiest mayor,” said New York State Deputy Comptroller Rahul Jain. “There are a lot of hard decisions that he did not have to make, because the revenues just kept rolling in,” Jain added. “That’s just not what this administration is facing right now.”
City spending for the next five years on expenses including education, health care, pay raises for unionized city employees and the extraordinary and unexpected surge in the number of asylum-seekers is projected to grow 3.9% a year, exceeding projected annual tax revenues by more than a percentage point, Champeny said. To balance the budget, city agencies are being asked to cut spending, either by letting vacant positions go unfilled, or trimming back services like library hours and meals for seniors.
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The city’s independent budget monitor agreed with the city’s estimates of slow growth in both tax revenue and total revenue over the five years of the financial plan, but estimated total property tax revenue growth will be higher than the city’s estimates from 2025 to 2027. All of the city’s taxes related to commercial real estate are likely to grow slowly, if at all, the independent monitor found.
Still, the city’s tax base — which also includes sales and income taxes — is very diverse, said Michael Rinaldi, a Fitch Ratings analyst. Assessments also tend to lag changes in market value. “The gaps are real, but there are tools available” to manage them, he said.
When asked what he plans to do to help salvage the commercial real estate market, Mayor Adams has repeatedly suggested the city and state should make it easier for commercial office buildings to be converted into residential spaces.
That plan is still far from reality. A provision Governor Kathy Hochul included in the New York state budget that would have made it easier to facilitate the conversion fell apart in negotiations, and didn’t end up in the final budget.
“At some point in time, the city has to make a decision with respect to level of services they’re willing to provide,” said Rinaldi.
–With assistance from Martin Z. Braun and Sophie Caronello.
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