IBO: Demand Will Warrant More NYC Office

NEW YORK CITY-The Independent Budget Office said Thursday it projects a need for about 52 million square feet of new office space through 2040, an amount that justifies the full buildout of the World Trade Center and Hudson Yards as well as the rezoning of Midtown East. City Council Member Daniel Garodnick, whose district includes Midtown East, had requested the IBO study, an update of its 2004 projections of office space needs in the city.

“There is substantial uncertainty inherent in making such projections, especially over three decades,” according to the IBO. “Small variations in factors such as job-growth estimates and the amount of space that firms lease per worker, along with the extent to which older office buildings are converted to residential use can lead to large differences in expected needs for office spacee.”

Accordingly, the agency devised three scenarios for the growth in office-using employment over the next three decades. The figure of 52 million represents a midrange between a slow-growth scenario of 30 million new square feet and the Bloomberg administration's projections of 87 million square feet. The Midtown East rezoning would allow up to eight million square feet of new stock to be built in the area.

Along with employment growth, another factor that could warrant new construction in the office sector is conversion of older stock into residential use. By '40, the IBO assumes, owners of office properties in Manhattan's CBDs and in Downtown Brooklyn—“neighborhoods that feature both strong residential demand and a preponderance of the city's oldest office buildings”—will convert or demolish 10% of these neighborhoods' prewar office space and 5% of the office stock built between 1946 and 1961.

“This amounts to a total of 19.9 million square feet in conversions and demolitions, or an average of 738,000 square feet per year,” according to the study. “If employment growth remains steady, the market would need to replace the space that is lost.”

Even if tfuture demand for office space comes in at the low end, “the city may still have legitimate reasons” for wanting to rezone Midtown East, according to the IBO study. “If the neighborhood's existing zoning constraints discourage landlords from reinvesting in the Grand Central area, then the rezoning could help satisfy a pent-up demand for new office space in the area.” The added supply could in turn make office rents more affordable citywide.