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What’s Next for Midtown?

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What’s Next for Midtown?

Manhattan’s central business district has been empty for a year—can it bring people back? Spring 2021
Covid-19
New York
Economy, finance, and budgets

For six decades, Gotham has relied on midtown Manhattan as the physical, economic, and fiscal center of the metropolis. From 34th Street to 60th Street, from Third Avenue to Eighth Avenue, 236 hyper-dense blocks across just 2.5 square miles (less than 1 percent of the city’s landmass) support jobs, wealth, and tax revenue—not just for the city but for the entire tristate region. In terms of dense, successful downtowns, nothing quite like midtown exists elsewhere in the United States. The global models that come closest are London and Tokyo.

As of mid-March 2021, midtown was a ghost town, all but empty for an entire year—something unthinkable before the pandemic struck in March 2020. Despite the Manhattan real-estate industry’s best efforts, most office workers have chosen to work from home, all the time, using little more than laptops and WiFi. Their employers have allowed, and even encouraged, them to do so. Tourists, too, who round out midtown’s transitory population, have stayed home because of strict international border closures, a reluctance to travel domestically during the outbreak, and the shuttering of almost all entertainment options.

The loss of foot traffic has frozen midtown’s ecosystem. With its tiny residential population—about 28,000 people, compared with 132,000 on the similar-size Upper West Side—midtown cannot support itself. Chain coffee shops like Starbucks and Pret A Manger have severely reduced their hours or closed completely. Chain retailers like Godiva and the Gap have left behind papered-up vacant storefronts. Many small independent restaurants still have year-old hand-lettered signs from last March taped to their doors, promising to return in a few weeks. A pedestrian can walk for blocks at rush hour and encounter only a few other people, mostly construction workers, security guards, and adventurous regional tourists, compared with the throngs of bankers and lawyers who once made Fifth and Sixth Avenue sidewalks more congested than the city’s streets.

What happens next? Provided New York’s elected officials keep the city safe—and that’s no guarantee, given a troubling new crime wave—the tourists will return when the entertainment venues reopen, and, in fact, regional tourists have gradually been returning as the weather has warmed. New York has withstood short downturns in tourism, and it can do so again. The much bigger challenge for New York’s future governor and mayor is persuading office workers to come back. For the first time in recent urban history, they, and their employers, have proved that they don’t need the city. A threshold exists beyond which the costs of agglomerating employees in an urban district—high rents, high taxes, and long and expensive commutes—is not worth it. To lure workers back, New York will have to offer better-quality public services, from mass transit to lunchtime park space, than it did before the pandemic.

Even the best-designed strategy for midtown might not succeed. But it’s far too early to admit—and thus assure—defeat, and give up on a matchless, and hitherto invaluable, central business district.

New York City has always had white-collar jobs. Wall Street has been Wall Street since 1792, when stockbrokers agreed to conduct securities trading in downtown Manhattan. For well over a century, publishers, editors, fashion designers, and advertisers all wanted to be in Manhattan, near their customers, competitors, and vendors. But for most of the twentieth century, blue-collar jobs defined the city’s economy. Just after World War II, in 1946, Gotham was home to nearly 1.1 million manufacturing jobs, or 31 percent of the city’s nearly 3.5 million total private-sector positions. Apparel, bicycles, machine tools, fabricated metal—New York, like many American cities, made things.

By the mid-1970s, though, New York had lost half those manufacturing jobs. Postwar, the mass marketing of affordable automobiles—and the construction of new roads to drive them on—enabled employers to relocate factories to cheaper, less congested, suburbs and, later, to southern states, without worrying that workers and freight haulers couldn’t find transportation to a less centrally located operation. Many U.S. cities never recovered from this abrupt deindustrialization. The fates of Camden, Detroit, Newark, New Orleans, and St. Louis are well-known, but even successful cities such as Boston have never regained their 1950 population. New York, which boasted a near-record 8.5 million people and an all-time high of 4.1 million private-sector jobs in February 2020, was an exception.

How did New York rebound, when so many American cities did not? It did something counterintuitive. Cities such as Boston and New Orleans tried to become more like the suburbs; New York, by contrast, recommitted to its central hub. Indeed, for all of its 1960s-era failings in budgeting and maintaining social order, among other woes, the city fortuitously embraced transit-centered density. In 1969, under Republican mayor John V. Lindsay, the city planning commission released a futuristic blueprint, “Plan for New York City.” The plan bluntly diagnosed the problem: with middle-class residents fleeing and crime rising, “it is obvious enough that there is a great deal wrong.” But it also saw what, ultimately, would be part of a solution. “Concentration is the genius of the city, its reason for being,” the report noted.

Observing that New York had built twice as much office space in the previous two decades as the nine next-largest American cities combined, the report determined that New York would keep building up, even faced with, so far, less than stellar results in employment. “We believe the center should be strengthened, not weakened, and we are not afraid of the bogey of high density. We hope to see several hundred thousand more office workers in the business districts in the next 10 years, and we think the increase desirable and helpful.”

To attract more office workers, Lindsay encouraged the dense skyscraper buildup of Sixth Avenue and other key corridors around midtown transit hubs. He also understood that to bring tourists—and growth—New York had to remain unique. Lamenting that the city had often “torn down what should not have been torn down and put up what should not have been put up,” as the report put it, the administration began giving density bonuses to developers for creating ground-level amenities, such as small parks, and for preserving theaters. “We believe the growth of the center can be shaped in such a way that it will be a far more amenable, convenient and pleasant place to work,” the report counseled. “Amenable” and “pleasant” weren’t afterthoughts. Lindsay canceled major highway projects to keep Manhattan livable, even if it meant more congestion, and he browbeat the transit authority into buying the first air-conditioned subway cars.

This strategy, hampered by Lindsay’s mistakes in other areas, took far longer to pay off than the “Fun City” administration had hoped. By 1976, New York had lost 56 of the 140 Fortune 500 firms that had called the city home at mid-century. Also by 1976, the city had hemorrhaged almost 10 percent of its nearly half a million finance jobs and 3 percent of its non-retail professional-services positions. During the 1970s, the city would also lose 10 percent of its resident population.

But the central-city strategy eventually bore fruit. In the early 1980s, affluent, educated baby boomers were starting their careers, and many chose to do so in New York. The financial industry was taking off, with its attendant need for bankers and lawyers. Ambitious twentysomethings, looking for money and excitement in PR, marketing, fashion, publishing, and advertising, were undeterred by shabby apartments and still-rising crime. Their disposable income fueled the city’s restaurant, retail, and nightlife scenes.

“Manhattan, with only 20 percent of the city’s residential population, boasted nearly half the city’s retail jobs total.”

The most enduring images of this era involve the 1980 transit strike, when a nearly two-week-long subway and bus stoppage could have ground the city to a halt. Instead, sneakered women in skirts and suited men on bikes, egged on by brash mayor Edward I. Koch, walked or cycled across the Brooklyn Bridge or down from the Upper West Side to make it to the office, at all costs; there was no option then of working from home. By 1990, the city had added 3 percent to its population and rebuilt its tax and political base sufficiently to tackle violent crime and other chronic problems.

By early 2020, New York City’s economy almost exactly fit Lindsay’s now-50-year-old plan. In October 2019, the city’s planning department produced another report, called “The Geography of Jobs.” This one made it clear that Manhattan—and midtown, in particular—was the crucible of employment and wealth across portions of three states. Though home to only 7 percent of the region’s population of 22.6 million, Manhattan claimed a full quarter of its 10.6 million jobs.

Manhattan was also the best-paying market. White-collar work—finance, media, lawyering, public relations, marketing—pays far better than other industries, with an average of $131,600 per position. The tristate region’s 2.8 million office jobs represent just 30 percent of private-sector employment but 52 percent of wages. A full 41 percent of these jobs were in Manhattan. Manhattan’s office workers, along with tourists, in turn, support other jobs—more than 150,000 per square mile, the densest concentration of employment in the nation. A separate report, by the New York State comptroller, notes that pre-pandemic, Manhattan, with only 20 percent of the city’s residential population, boasted 157,000 retail jobs, nearly half the city’s total.

These workers, residents, and visitors got around on public transit. Of the nearly 3.9 million people arriving in Manhattan south of 60th Street on an average day in October 2019, three-quarters came in via subway, bus, commuter rail, ferry, bicycle, or tram, according to the New York Metropolitan Transportation Council.

Virtually overnight, the pandemic disrupted this densely webbed concentration of six-figure office workers, middle-class hotel housekeepers, minimum-wage retail clerks, and paid-by-the-ride delivery workers and for-hire car drivers. On March 12, 2020, the Bryant Park Whole Foods outpost was packed with maskless people, commuters waiting in a line that stretched out the door, to bring the last few boxes of spaghetti and rolls of toilet paper home on the train. For many white-collar workers, that Thursday was the last day at the office.

By Friday, March 13, Whole Foods was empty. By April, it was temporarily closed, used as a warehouse from which delivery workers carted food to residential parts of Manhattan. The store reopened in late August, but by March 2021, a year after the pandemic started, it was still not unusual to be one of just a handful of shoppers there. Frequent midtown walkers know that there’s no such thing as rush hour anymore. You can walk up Sixth Avenue at 5:30 PM and encounter the same number of pedestrians—two or so per block—that one would normally see at 5:30 AM before the pandemic.

Emergency work-from-home decrees have begun to harden into longer-term habits. The Cushman & Wakefield real-estate services firm estimates Manhattan’s office-vacancy rate at 15.2 percent, a 26-year high. Ryan Wheeler, senior account executive at Sher-Del Transfer, a corporate logistics firm, has seen the change firsthand. Sher-Del’s pre-Covid business, he notes, was moving a corporate tenant “from skyscraper A to skyscraper B. We relocate and pack up everybody’s office and desk and computer.” After the relocation, Sher-Del “liquidates” whatever remains—old desks and chairs that nobody wants—so that the office is left in “broom-swept” condition for a new tenant. Normally, says Wheeler, “every day in New York City, every week, there are dozens of relocations. . . . Companies are coming in, going out, expanding, going out of business.”

For the past year, though, Sher-Del’s business has been all in one direction: out of Manhattan. Major retailers, going bankrupt or in severe distress, were vacating their headquarters. Companies remaining in business weren’t renewing expiring ten-year leases. Instead of moving office paraphernalia to a new office, Sher-Del workers would “pack it, wrap it, and send it to the employees at their homes and apartments.” Some firms would direct everything else to go into storage. Some of the vacating tenants began to say, “The landlord told us just to leave everything. . . . Don’t worry about it.”

The data back up the stories. In April 2020, foot traffic around Grand Central Terminal and Rockefeller Center, two of midtown’s focal points, had fallen by more than 97 percent, according to Placer.ai, a foot-traffic analyzer. By January 2021, it remained down by 81 percent and 78 percent, respectively. Even the most optimistic real-estate groups estimate that fewer than 15 percent of office workers have returned.

As of early March 2021, the Metropolitan Transportation Authority’s subway ridership remained down by 70 percent. But commuter-rail ridership—a proxy for wealthier suburban white-collar workers coming to Manhattan—remained down by 75 percent on the Long Island Rail Road and by 80 percent on Metro-North.

The longer that midtown stays empty, the tougher it will be for it to recover. Converting spare bedrooms into home offices, improving WiFi, and taking other steps, office workers have spent a year upgrading their remote infrastructure. Many restaurants and stores that temporarily closed a year ago are now permanently shuttered. Closed storefronts won’t bring commuters back.

Save for those 28,000 residents who call midtown home, New York City hasn’t yet experienced the broader implications of an indefinitely muted central business district. The jobs implications are grave. Hundreds of thousands of outer-borough workers depend on midtown office workers and tourists for their retail, restaurant, hotel, and clerical employment. Starting in the 1980s, the burned-out South Bronx started to revive, not just thanks to Mayor Koch’s $6 billion housing-investment plan; a resurgent New York also needed new workers, those workers needed homes, and many of the immigrants among them chose the comparatively inexpensive South Bronx because of its proximity, via transit, to the central city.

The tax and municipal-budget consequences are also profound. In the year before the pandemic, Gotham’s commercial property—its value largely concentrated in Manhattan—constituted $12.9 billion of the city’s $31.6 billion in annual property taxes and 21 percent of the city’s entire tax base. Already, New York has reduced these future property-tax revenues by $2.5 billion, citing lower office-tower values.

The city’s income-tax base, constituting an additional $13.3 billion of the overall tax base, is at risk, too. For now, white-collar workers living anywhere in New York City continue to pay city income taxes as if they commute to midtown daily, even if they’re among the estimated hundreds of thousands who have temporarily left the area. If temporary becomes permanent, this high-income tax base will erode.

Suburban leaders ought not feel complacent; the only reason a house in Westchester, New York, or in Greenwich, Connecticut, is worth several times more than the equivalent house in, say, suburban Charlotte or Houston is its proximity to midtown. If midtown has less value, the suburbs, over time, will fall in value, too. Long Islanders, for example, will wonder why they’re paying tens of thousands of dollars in property taxes each year for privileges no longer identifiable.

Is the central-city office dead, then—just as dead as those mid-twentieth-century urban factory jobs? New York’s commercial-office industry is known for its optimism, and if there were ever a time to be congenitally optimistic, it’s now.

Jeremy Moss, director of leasing at Silverstein Properties, which owns, among other commercial towers, an office tower on Midtown’s Sixth Avenue, says that, though new leases have virtually halted, commercial tenants are doing renewals. “The expectation is that no tenants will be departing” this year, he says. He notes, though, that tenants “have elected to do shorter-term extensions” of a year to 18 months, rather than the normal ten-year lease.

Moss is upbeat about the rest of 2021. He notices that law firms and accounting firms “seem to have returned in greater numbers” because the work requires “tremendous amounts of focus and concentration,” something hard to do while minding children and doing chores at home. He predicts “a substantial return to work over the course of the year, there’s no question. . . . Our major tenants [are] all putting dates on the calendar.”

Yet he doesn’t think that the workplace will snap back to pre-pandemic norms. Employers and workers will determine “who needs to be in every day, who needs to be in sometimes, who doesn’t need to be in. The net result will be a workplace that’s much more efficient. You won’t be bringing people in just to clock in.” In turn, that means “a better quality of life for people,” with less crowded commutes. Sher-Del’s Wheeler echoes the optimism, though tepidly: “We are starting to at least hear the rumors—companies saying, OK, look, there are deals to be had right now,” in terms of moving to higher-quality office space for less money, he says.

On Fifth Avenue, where high-end retailers, hoteliers, and side-street restaurants depend on the midtown mix of office workers, business travelers, and tourists for customers, Jerome Barth, president of the Fifth Avenue Association business-improvement district, also takes a brighter view. When people do come back, upgraded hotel ballrooms and office spaces will greet them. “There’s definitely a movement by everybody to do capital work that maybe they were thinking to do—a number of renovations of hospitality space, accelerating their work schedules into this period,” he says. So “maybe we’ll have better facilities, a better offer of services.” He also notes that Fifth Avenue will make changes, including adding outdoor dining on its wide sidewalks.

“What is still hurting,” however, “is that the foot traffic isn’t there. . . . We see a little bit of activity in the stores—nowhere where it should be.” It’s “not gonna happen” until “a balance of things . . . take place.” First, he says, “kids need to be in school. We need the schools to reopen.” With kids at home, parents can’t go back to work, let along go out to shop much. He detects pent-up demand for the office, observing that when he does Zoom calls with his member companies, people are jealous. “Oh my God, you’re in the office,” they say. “We’re reaching the limits of the model” in “what is the adjustment of work-life balance. . . . We’ve demonstrated that many things can happen through the screens of our computers,” but not others, including spontaneous, collaborative work.

Phil Columbo, manager of the Bryant Park Hotel, which overlooks the park from the south side—between Fifth and Sixth Avenues—sees hopeful signs for tourism. For 19 years, he has managed this independent, 128-room hotel. Last March, he had to shut down, laying off 250 employees. “It was really tough,” he says. “I’d bring everyone back if I could.” In September, he says, the hotel decided to reopen, and “established very limited service,” with concurrently limited jobs. As of mid-March of this year, the hotel is about 20 percent full. Through spring and summer, he continues, “I see some improvement, already, on advance bookings.”

Bryant Park in happier times (© SZ PHOTO/BRIDGEMAN IMAGES)

The mix of visitors has changed. “It’s mostly people driving in. . . . We get a lot of young couples on the weekends. I think the young people . . . come here just to walk around the city, get out of the house.” With older folks, Columbo says, “the vaccine is a huge plus. I can see it in people and hear it in people, ‘Hey, I just got my second vaccine.’ ” Columbo believes that the U.S.—and New York—will open to European and Asian visitors by summer. After that, “once Broadway opens, once more restaurants can go to . . . maybe 75 percent capacity,” he says, the hotel will start to fill up.

For now, New York officials must realize that it’s not the time to attempt radical changes to midtown. Many well-meaning politicians, for instance, have suggested converting empty office towers and hotels into subsidized low- and middle-income housing. This makes zero sense. To create a comfortable residential neighborhood means more than housing; it also requires supermarkets, primary-care doctors, public schools, and playgrounds.

Midtown has none of those everyday residential family amenities, and building them would mean permanently destroying the city’s jobs, income, wealth, and tax-revenue hub. The cumulative tens of billions of dollars in investment in major transit centers—from Grand Central Terminal to Penn Station to the soon-to-be-open East Side Access terminal for Long Island Rail Road trains on Manhattan’s East Side—will be worth much less if fewer commuters rely on them each day.

For Carl Weisbrod, former New York City planning commissioner, mass-scale conversion of midtown office towers into apartments “is seriously misguided, because it is not possible to do . . . without substantial tax abatements. Why would we undermine the tax base in midtown Manhattan?” As for converting hotels into apartments, when tourists come back, Weisbrod counters, we will need our hotels. “What we should be doing in midtown Manhattan is preparing for the return of tourists, encouraging office workers to come back.”

How can New York tip the scales in favor of return? First and most important: ensure quality of life. Returning workers or tourists don’t want to be intimidated by the drug addicts, mentally ill individuals, and vagrants who now haunt key transit stations. “The city and state have to work together to improve the street experience,” says Moss. “We have a homelessness issue that has to be dealt with thoughtfully, creatively, and effectively.” Barth concurs. “We need active champions in the public sector—screaming from the rooftops that New York is open for business,” he says. “One of the reasons New York blossomed [was that it] benefited from its status as the safest big city in the world,” a brand that the city “could sell in Paris, Moscow, Shanghai.”

Second, the city needs better street management. Barth says that Gotham should “take inspiration from some of the great streets of Europe, which have street closures” to car traffic, in favor of pedestrians, “at peak visitation.” He points out that high-traffic pedestrian times for midtown, such as Christmas, should be “a great moment of life on the avenue,” and not cause “further complications of pedestrian management.”

Third, don’t test major financial and legal firms’ as well as other midtown employers’ willingness—and ability—to leave town. Despite rhetoric from increasingly left-leaning state lawmakers, now is not the time to raise taxes on mobile earners or companies. Indeed, it’s striking that major property owners haven’t put together a list of desired policy proposals for their own direct benefit, as the restaurant industry has done; for now, they are more concerned about what Albany and city hall might do to deter their tenants from returning. Major real-estate firms signed on to a mid-March statement by 250 local CEOs warning that tax hikes would cause a loss of local financial and other white-collar jobs.

Finally, use time wisely. Time, for city government, as well as for office owners, is money. New York is extraordinarily fortunate, in that the Biden administration has approved $6.5 billion in direct stimulus aid to the city, meaning that its budget woes are postponed until at least 2022. The city should take this time to make long-term adjustments, preparing for the real possibility that, even by 2023 or 2024, life will not have returned fully to normal, and property-tax revenues will have fallen even further. Skimping on public services in a budget crunch will help guarantee that commuters and visitors with a choice won’t return.

Meantime, midtown can draw inspiration from the one local fixture that has refused to bow to the pandemic: Bryant Park. This past winter, even with no global tourists and few passersby, the Bryant Park Corporation, the private group that runs the park under a concession with the city, determined to open its traditional Winter Village of outdoor shops, anchored by a professional-quality skating rink, sponsored by nearby corporate neighbor Bank of America.

For park managers, it was an enormous gamble. They could have opened the rink and the village, only to have the city shut it down, as Covid cases rose, or have nobody show up. Yet “we felt we had no choice but to make the risky decision to go forward,” says Bryant Park Corporation president Dan Biederman. “The city cooperated magnificently on the matter,” he adds.

The risk paid off. Normally, Winter Village would yield about a $5 million annual profit; this year, it took in $2 million—but that’s a lot more than zero. More important than the money is the foot traffic. Bryant Park accomplished what no other entity in midtown has managed to do: get people back. In December 2019, with global tourism roaring and office workers happily at their pre-pandemic desks, the rink attracted 108,224 skaters. In December 2020, it drew 53,889 skaters. Normally, a 50 percent drop in visitorship would be a disaster; in this case, it’s a triumph. In February 2021, the rink drew 32,314 skaters, only one-quarter below last February’s level. This year, 91 percent of the rink’s visitors are from the tristate area, far higher than during a normal year.

The Winter Village’s presence has kept hundreds of thousands of cumulative rink and kiosk visitors from forgetting something vital: midtown still exists. New York City did not take even the worst winter in history off. We’re still here—and waiting.

Top Photo: A scene from pandemic midtown (JONAS GUSTAVSSON/SIPA USA/AP PHOTO)

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