The pandemic took a big bite out of the Big Apple's office market. According to a report by New York State's Comptroller, the value of office buildings in New York City plummeted 16.6% in the past year, wiping away $28.6 billion in value. That's having an impact on investors who own office buildings in the city.
However, while property values are down overall, some are holding up better than others.
A big hit for the biggest office market
New York City has the world's largest office market. It had 463 million square feet of office space, which New York's Comptroller valued at $172 billion for the state's 2021 fiscal year. However, the latest report values the city's office market $28.6 billion lower, or a decline of 16.6%. It's the first drop in two decades and erased years of growth for the city's office sector. This decline will cost the city $850 million in property tax revenue in 2022.
The city's most expensive properties experienced the biggest value decline. For example, the report pointed out that the market price of the World Trade Center complex declined by 23.1%. The centerpiece, One World Trade Center, a 1,776-foot skyline-defining office tower, cost $3.8 billion to build, making it one of the country's most expensive skyscrapers ever constructed. Unfortunately, that entire complex hasn't made money for the building's owner, the Port Authority of New York and New Jersey, since it opened seven years ago. Given the continued headwinds facing the city's office market, it likely won't in the near term.
One of the biggest issues weighing on office values was rising vacancies. According to the report, vacancy rates hit 18.3%, the worst rate in three decades. That has started impacting rental rates, which have declined by 4.2% over the past year.
Office landlords are feeling the impact
The decline in New York City office values has weighed heavily on landlords. That's evident in the stock prices of real estate investment trusts (REITs) focused on the city: