New York City’s Commercial Space Conundrum

New York City’s Commercial Space Conundrum

New York City’s Commercial Space Conundrum
January 27, 2014

At the turn of the century, there was a general worry among real estate developers about the lack of commercial space in New York City. Across the Hudson, New Jersey was being touted as the “sixth borough”—the next frontier for commercial development, with Manhattan overcrowded and no momentum for re-zoning the outer boroughs.

Enter U.S. Sen. Charles Schumer. In 2000, Schumer convened a group of 35 business, labor and academic experts to develop an ambitious plan that called for a combination of condemnation, tax breaks, transit links and zoning changes to create expanded business districts in downtown Brooklyn, Long Island City in Queens and on the far West Side of Manhattan.

“There is a troubling storm cloud on the horizon that could cause New York City to stagnate or even decline,” Schumer said at the time in a speech introducing the Group of 35. “The troubling storm cloud can be summed up in one word: space. Though many are not aware of it yet, New York is about to enter into a space crisis.”

Nearly 14 years later, much of the Group of 35 plan has been implemented, thanks in large part to Mayor Michael Bloomberg. In addition to the three aforementioned business districts, all of which were re-zoned under Bloomberg, the city approved plans to develop ancillary business districts in the Queens neighborhoods of Jamaica and Flushing, and along 125th Street in Harlem—recommendations which were also made in the original report. With this mix of outer borough and Manhattan development, New York City actively sought out ways to remedy its space problem.

Still, with Manhattan the crown jewel as far as attracting businesses, Bloomberg hoped to achieve one more development goal before exiting office at the end of this month: re-zoning Midtown East. The Bloomberg administration envisioned soaring skyscrapers like those in Lower Manhattan clustered into a 73-block area around the Empire State Building.

However, with a groundswell of activists and environmentalists opposing the plan, citing traffic and preservation concerns, the Midtown East plan was scuttled at the last minute. City Councilman Dan Garodnick, who represents the neighborhood, declined to vote in favor of the plan, though he left open the possibility of revisiting it during the next administration.

Is Midtown East the final frontier for commercial development in Manhattan? Richard Anderson, president of the New York Building Congress, noted that a construction report issued by his organization in October showed that 94 percent of all office construction in the city is in only two places: the World Trade Center site, where One World Trade Center and several of the adjacent buildings are nearly complete, and Hudson Yards on the Upper West Side, which broke ground last year. As for areas of Manhattan that are still ripe for development, he pointed to a parcel of land near the United Nations building, and the Brookfield site on the far West Side, which broke ground earlier this year. He also said that there is plenty of remaining space at Hudson Yards.

“We have a lot to absorb before people would run to the outer boroughs,” Anderson said. “The outer boroughs are more residentially oriented, anyway. You’ve got downtown Brooklyn, which certainly has potential, everything from the Borough Hall area down to Atlantic Yards. There’s a lot of room there.”

Of course, a great deal will depend upon how the incoming mayor, Bill de Blasio, will prioritize development. De Blasio has roots in Brooklyn, where his family lives and he served in the City Council, and he has a track record of being fairly development-friendly, voicing support in the past for the controversial Atlantic Yards project in downtown Brooklyn.

De Blasio has staked out a position as a “progressive”—zeroing in on income inequality, and making the city fairer for all. How this dovetails with the future of commercial development remains to be seen. De Blasio has a grand plan to build hundreds of thousands of affordable housing units, but with so little land available, incentivizing developers to build is expensive.

De Blasio will also face the challenge of building relationships with the real estate and construction communities. One real estate source, who requested to go unnamed so as not to offend the mayor-elect, suggested that developers might find it less palatable dealing with a political operative like de Blasio than a business titan like Bloomberg.

“If you’re a business leader and you’re making decisions about where you’re going to locate your business…obviously that crowd felt a lot better dealing with the billionaire guy at City Hall who built his own business, because he inherently came from that world,” the source said.

During the Bloomberg era of mass development, as long as people had the appetite to locate their businesses in New York, the city found a way for them to do so. The question remains whether de Blasio will be as accommodating.

Nick Powell