NYC poised to build more office towers

New York Governor Kathy Hochul is betting workers will eventually return to the office and is backing one of the largest real estate development projects in US history: 10 towers of mostly offices in Midtown Manhattan.

They would be built around Penn Station, one of the busiest intercity rail stations in the world. It served more than 600,000 passengers per weekday as of 2019.

Empire State Development, the state's economic development agency overseeing the project, in July unanimously decided to push ahead with the project that will change the face of the area.

But the proposed multibillion-dollar project advances as uncertainty remains over the fate of commercial real estate — especially office space — as many companies find flexible ways for employees to work outside the office.

Plans for the Penn Station redevelopment have been in the works for more than a decade. Hochul inherited the project from former governor Andrew Cuomo, who was forced to resign in 2021 amid sexual harassment allegations.

Brian Fritsch, communications director at the Regional Plan Association, a not-for-profit that develops and promotes ideas to improve the economic health of New York, New Jersey and Connecticut, believes that the redevelopment could be positive.

Fritsch told China Daily: "I can't think of a better place to build density than right around Penn [Station]. It's been a neighborhood that's been disinvested and just not seeing the type of investment that other parts of Midtown and, and Midtown South in this case have seen."

Kevin Yunis, Empire State Development's COO and executive deputy commissioner, said in a statement that it will "spur a revitalization of the business district surrounding the station for decades to come".

Trains Before Towers, a group of residents and transit advocates, have criticized the project, suggesting that it will "devastate the neighborhood" because it could displace 473 businesses and 128 housing units.

The newly built Penn Station would have 18 million square feet of mostly office space surrounding Madison Square Garden, above Penn Station. There will also be 1,800 residential units and a 472-room hotel.

The remaining area would be for shops. The towers would have new entrances to the transit station but no new train tracks will be created. Upgrading Penn Station alone is expected to cost $7 billion.

The new Penn Station is expected to be completed by 2027. It is cramped and downtrodden.

As the development is championed by officials, commercial real estate and the way people work is in flux.

In 2020, amid the pandemic, office employment in the city fell 5.7 percent, as many people worked remotely.

In the third week of August, only 37 percent of workers in the city went into the office, according to Kastle Systems — a security company that monitors the number of workers who swipe their cards to get into office buildings.

Manhattan had 463.8 million square feet of office space, in 2021, nearly 11 percent of all office space in the nation, according to figures from the New York state comptroller.

More than 250,000 businesses are in New York City, and office workers account for a third of all jobs in the city compared with a quarter in the rest of the US.

Fritsch suggested that because the plan to redevelop Penn Station is long term, the employment landscape will likely have changed again by the time the towers are built.

"You have to consider the timing of when they [the 10 towers] would come online," Fritsch said. "There's no doubt that work from home has dramatically increased as a result of the pandemic.

"But these towers aren't scheduled to be completed for some time, 15 years would be optimistic, or 10 to 15 years for the first few, and, maybe not until the late 2030s for the final ones."

Vornado Realty Trust is one of the main developers of the towers. Its CEO Steven Roth has been criticized by government watchdogs for donating to Hochul's re-election campaign.

Roth says that once the offices are built, they would rent for $100 per square foot. Most offices nearby rent for $72 per square foot. Five of the new towers will be built by Vornado.

After all of the towers are completed, Vornado and the other developers would not have to pay property taxes. Instead, they could get tax breaks worth $1.2 billion, according to a report by good government group Reinvent Albany — spurring more controversy.

The developers would contribute toward repaying the costs to upgrade Penn Station and would be responsible for paying for the construction of the buildings.

In July, New York Mayor Eric Adams struck a deal with Hochul that the towers will cover 12.5 percent of the costs for Penn Station's reconstruction and its expansion and a further 50 percent of the costs for transit improvements and all of the costs for public real improvements.

Fritsch added: "All of the developments will be subject to further negotiations. So, nothing is set in stone."

Other businesses across the city are also keen to see Manhattan rebound.

Restauranteur Luca Di Pietro owns four locations of Taralluci e Vino, his Italian restaurant and wine bar in New York City. He caters mainly to the city's office workers, some near Penn Station. But as many workers are still remote, his businesses are "in the red".

Di Pietro told China Daily: "I think the city, for its own sake, and for tax revenue needs to bring people back to work. This is tough, because companies have changed the way they work."