NYC comptroller report forecasts possible 40% drop in Manhattan office values due to remote work

A “doomsday scenario” catalyzed by the thinning of in-person attendance at work could lead to a 40% drop in Manhattan’s office space value and a resulting shortfall in New York City property taxes, a report from the municipal comptroller warns.

That scenario would mean a shortfall of $322.7 million in taxes in the 2025 fiscal year, growing to a budget gap of $1.12 billion two years later, according to the report, issued last week by the comptroller, Brad Lander. Property taxes are the city's biggest single revenue source.

Still, the report noted, even those worst-case shortfalls are just a fraction of the revenue funding the city’s budget, which Mayor Eric Adams has proposed to be $106.7 billion for the upcoming fiscal year.

“While not a small amount,” the report said of the shortfalls, “it is well within the range in which tax revenues can ordinarily vary.”

The coronavirus pandemic is fading but its aftermath continues to cast a shadow on how and where office work is done, particularly with hybrid scheduling.

Many workers telecommute two to three days of the workweek. Office attendance is about 50% on a typical workweek; subway ridership is 35% below pre-pandemic levels, the report says.

“While New York City’s economy has largely rebounded from the pandemic, the commercial real estate sector, in particular the office market, has not,” the comptroller’s report says. “The gradual trend toward remote work over the past few decades accelerated to warp speed in the spring of 2020, as almost all businesses that could operate remotely were required to do so.”

The comptroller’s analysis examines four scenarios, including the “doomsday” one in which the 40% drop in office values would take place by the 2031 fiscal year. They also include one that is "moderately pessimistic” about office growth and one that is "moderately optimistic." In none of the scenarios, which are based on varying projections of real estate valuations, is the future for New York City cataclysmic. 

This year, office vacancies in the city hit a record high — nearly 23%.

“The question on many people’s minds is: what lies ahead? It seems increasingly clear that, while companies still need and value office space, hybrid remote work arrangements are here to stay,” the report says. “In effect, many businesses are now able to do more with less office space; how much less space remains to be seen.”

Still, property taxes aren’t the only government revenue lost when even a fraction of the workforce goes remote. It also can have spillover effects, such as with lenders and residential offices.

One of the indirect effects of fewer people heading to work in person is reduced spending — and thus less tax paid — on food, transportation and in retail stores near offices, according to Mitchell L. Moss, professor of urban policy and planning at New York University.

But some of that money will be spent in workers’ hometown bedroom communities.

“Of course, local restaurants and stores in parts of Queens and Brooklyn as well as suburban communities benefit from the rise of work at home,” Moss said. “And, towns like Sag Harbor and East Hampton are no longer filled three months a year, but are now active as second homes have become first homes for those who can work remotely.”

Before the pandemic, about 315,000 Long Islanders commuted into jobs in the city, according to the city’s planning department, which said about 225,100 were from Nassau County and 89,300 from Suffolk. The bulk went to jobs in Manhattan.

And, pre-pandemic, about 22% of the 1.4 million Long Islanders who the state Labor Department said had jobs worked in the city.

Updated figures weren’t available.

By Matthew Chayes

matthew.chayes@newsday.comchayesmatthew

Matthew Chayes, a Newsday reporter since 2007, covers New York City.