A recent report from the Mastercard Economics Institute, a research arm of the credit card company, found that spending by small and medium-sized businesses in central business districts was down 33% from 2019 levels, while retailers in residential areas saw an 8% drop. increased spending. An analysis by the New York Real Estate Board last month found that nearly 30% of storefronts in a part of downtown near Grand Central Station are vacant.
Nick Stone, founder and CEO of the Bluestone Lane coffee chain, said in a recent interview that customer volume at its downtown locations was still down about 60% from before the pandemic, “this which is impossible for companies like us who depend on consistency. of patronage.
Barbara Blair, president of the Garment District Alliance, a group representing landowners and businesses in an area just south of Times Square, said the lack of foot traffic contributed to crime fears and exacerbated crime. persistent problems such as homelessness on the streets.
“We wouldn’t like anything better and our restaurants would like nothing better than having a lot, a lot more housing in the neighborhood, and I think that’s a very, very good idea for people who can afford it. convert, if they convert, ”Blair said. “I think residential would really change the tone on the streets and what you see every day and the viability of retail.”
For New York, this is not entirely new territory. Lower Manhattan – the area around Wall Street and Battery Park – experienced a similar transition in the 1990s and early 2000s – a transformation that Whelan, the real estate board and others believe could be a model for the city center.
In the 1980s and 1990s, the commercial office market in Lower Manhattan was depressed; the quality of the office stock was considered outdated compared to other parts of the city and the area struggled with large amounts of vacant space. An incentive program that would cancel homeowners’ property tax payments for a period of time was established in 1995 to encourage home conversions; over the following decades, nearly 20 million square feet of office space was turned into apartments, and over the past 20 years, the area’s residential population has nearly doubled, according to an estimate from the Alliance for Downtown New York , a local business group.
“It’s fair to say this is one of New York’s great success stories. I think it’s, quite frankly, a global success story in terms of urban revitalization, ”said Whelan. “It really helped bring lower Manhattan back in a number of ways.”
Paul Levy, founder and CEO of the Center City Philadelphia business management district, said the reallocation of old commercial buildings is a growing trend in cities across the country, from Philadelphia to Minneapolis to Los Angeles.
“It’s a 20-year phenomenon in most cities, it’s just getting more urgent right now,” Levy said. “I think we know how to do this in downtown areas; converting buildings from one use to another is something we are doing across the country.
For all office-residential trips conversions could help revive inner-city neighborhoods and help cities develop much-needed housing, a range of structural, economic and political factors making them virtually difficult to pursue.
In New York, for example, the same financial approach that worked in lower Manhattan decades ago is not clearly reflected in the present.
Through the pandemic, a saving grace for office owners has been the fact that leases with businesses often span a decade or even more, meaning many businesses won’t need to make decisions. major real estate companies for a while. For a conversion to occur, however, office tenants must vacate a building, a process that would take at least several years. And falling rents and falling office values should be sustained over the long term so that conversions present a logical financial trajectory for owners.
This is one of the reasons why experts say conversions, even though they mostly generate homes at market rates, require tax incentives of one form or another to help homeowners survive during this transition – a tricky proposition in cities like New York where significant tax breaks for real estate developers and large corporations are under scrutiny.
Carl Weisbrod, former head of the New York City Planning Department and, prior to that, architect of efforts to revive lower Manhattan, said he could see this strategy replicated “to a very limited extent” in downtown. city. But the office space market has not fallen to the point where it would be financially feasible or desirable on a larger scale – at least not yet.
The state of office space in Lower Manhattan in the 1990s meant that properties, especially older ones, could be purchased “at a very, very cheap price,” Weisbrod said. “This doesn’t really exist in the city center, where even buildings that are not so new still sell for fairly high prices. “