How NYC’s Office Market May Impact City Finances

We find that even should a “doomsday” type scenario unfold, with sharply falling property values, NYC’s fiscal situation is likely to be manageable. New York by the Numbers Monthly Economic and Fiscal Outlook Photo Credit: Oleksandr Berezko/Shutterstock [READ MORE]( No. 78 - June 13th, 2023 A Message from the Comptroller Dear New Yorkers, Like our smoke-filled skies last week, the economic indicators – at both national and local levels – are pretty murky. There are signs of both strength and weakness in the economy, and some things (like the divergence of New York City and New York State personal income tax receipts that we explore below) that are just plain weird. If you’re looking for a good conversation about the volatility in the post-pandemic economy, I enjoyed [Chris Hayes’ recent podcast with Felix Salmon]( on the “new not normal.” (Chris and I [talked earlier this year]( about trends in New York and other cities.) One trend that’s important but challenging to predict is the impact of hybrid work on the NYC commercial office market – and consequently on the City’s property tax revenues. In this month’s [spotlight]( we look at a range of scenarios. We find that the overall impact on City tax revenues is not likely to be large, and almost certainly not catastrophic. Even in the “doomsday” scenario we consider, which envisions property values falling 40% from pre-pandemic levels, we find that the estimated revenue shortfall could be $1.1 billion in FY 2027, a manageable 1.0% of the City’s total budget that year. Meanwhile, we find that payments to the City from Hudson Yards are coming in higher than budgeted (about $200 million above projections annually, taking into account increases to the amount of tax revenue the City transfers to Hudson Yards each year as well), a bright spot in the commercial real estate sector. (This is an area where the data could lead me to adjust my prior thinking: I had doubts about the financing approach the Bloomberg Administration utilized). That doesn’t mean everything is hunky-dory, of course. As a [recent New York Times analysis]( showed, coastal cities including NYC – which have long been too expensive for low-income and working class families – are now pricing out college graduates as well. So it’s especially distressing that Albany failed to take any action on housing in the legislative session that concluded this weekend. Volatile times call for humility, honest assessment of the data, new strategies where old ones won’t work (e.g. props to our public finance team on the [innovative tender offer]( they executed earlier this month, which contributed to saving the City over $100 million, at a time when rising interest rates make straight refinancing less attractive), and adaptive capacity to face changing winds. We’ll keep watching the numbers, even when they aren’t as clear as we might like. Sincerely, Brad Lander Table of Contents - [The U.S. Economy]( - [NYC Labor Markets]( - [Inflation and Housing Costs]( - [Business and Real Estate]( - [Homelessness and Asylum Seekers]( - [City Finances]( [Read the Full June Economic Newsletter]( Spotlight: What Risks Does the Office Market Pose for the City’s Finances? With the dramatic shift toward remote and hybrid work prompted by the pandemic, New York City’s office market has emerged as perhaps the most vulnerable segment of New York City’s economy and tax base. This month’s Spotlight takes a closer look at the ongoing slump in the local office market and lays out our baseline forecast and how it feeds into tax revenue. We then explore the risks it poses for the City’s fiscal situation. We find that even should a “doomsday” type scenario unfold, with sharply falling property values, the city’s fiscal situation is likely to be manageable. [Read the Spotlight]( [Read the Full June Economic Newsletter]( [Twitter]( [Facebook]( [Link]( [Website]( Copyright © 2023 New York City Comptroller's Office, All rights reserved. Signed up for Comptroller sponsored events Our mailing address is: New York City Comptroller's Office 1 Centre Street Room 2230New York, NY 10007 [Add us to your address book]( Want to change how you receive these emails? You can [update your preferences]( or [unsubscribe from this list](.