New York City’s office buildings saw their first decline in property values in over two decades as the pandemic shuttered businesses and sent thousands of workers home, raising serious questions about the health of the city’s finances.
The full market value of New York City office buildings was estimated at $172 billion in fiscal year 2021, according to a report out Thursday from New York State Comptroller Thomas DiNapoli. That was down 16.6% in the fiscal 2022 final assessment roll, which the report calls the first such decline “since at least fiscal year 2000.”
The pandemic “wiped out years of growth in New York City’s office sector,” the report says. It erased nearly $28.6 billion in market value from the city’s 463 million square feet of inventory, and cost more than $850 million in property taxes in the city’s fiscal 2022 budget.
While office property values hit $172 billion in fiscal 2021, billable values, which is the market value on which property taxes are levied, hit $71 billion, the report says. Those values were assessed before the pandemic began, and both values had more than doubled over the previous 10 years.
That’s city-wide, however. As the report points out, “some of the city’s most expensive office properties dropped significantly. For example, the market price of the World Trade Center complex dropped by 23.1%.”
By the second quarter of 2021, vacancy rates were at a whopping 18.3%, “a level not seen in over 30 years,” the report says. Asking rents were down as well, but only by 4.2%.
The comptroller’s office estimates that in 2021 the city’s office sector will provide at least $6.9 billion in direct revenue in property taxes, real estate transaction taxes, mortgage taxes and commercial rent taxes – and that’s only direct costs, not including any multiplier effects. Property tax collections are expected to fall 5.4%, or $1.7 billion, in fiscal 2022, “more than half of which is due to drops in office billable values,” the report notes.
As large swathes of commercial space sit empty, there has been some discussion about converting some of it to residential use, the report notes. MarketWatch has previously reported on that possibility.