• Midtown Manhattan is in need of reinvention in a world reshaped by remote work.
  • Experts say Midtown needs to become more residential and mixed-use while continuing to attract office workers.
  • The mayor has a plan to rezone parts of Midtown to spur more housing construction.

Midtown Manhattan is struggling. Many of the office towers that dominate its skyline are sitting empty as workers settle into remote or hybrid lives and companies drop their leases. Office workers aren’t particularly keen to return to Times Square — the most Instagrammed place in America is seeing about 15% less foot traffic than it did in 2019.

Like most American business districts, Midtown is heavily dependent on office workers and tourists. One way to revive it is to make it a place more people call home. For decades, the city’s zoning laws have made it illegal to build housing in large parts of central Manhattan. Old manufacturing neighborhoods like the Garment District are no longer the industrial powerhouses they once were, but they still prohibit people from living there. The combination of office vacancies and a severe housing shortage and homelessness crisis have put pressure on the city to do something about it.

The healthiest business districts do much more than their name suggests. Mixed-use office districts — with apartments, a range of retail, restaurants, other businesses, public spaces and amenities like parks, schools, and libraries, and good mass transit — are much better for cities. And New York City has had success transforming single-use office districts, most notably Lower Manhattan’s financial district, into more vibrant mixed-use places.

Mayor Eric Adams wants to replicate that success in Midtown. He recently unveiled a plan to rezone Midtown South to encourage new housing construction and the conversion of office and manufacturing spaces into apartments. The area — between 23rd and 40th streets and Fifth and Eighth Avenues — is home to 7,000 businesses and 135,000 jobs, and the city hopes loosening the zoning laws will spur the creation of 20,000 new homes across New York City.

Dan Garodnick, the director of New York City’s Department of City Planning, told Insider the city wants Midtown South to become “a 24/7 live-work neighborhood.”

“We have seen Midtown South as a place that is a bit out of whack with other commercial districts in the borough because it is not mixed-use in character,” Garodnick said. “We saw an opportunity now because there is a will to take bold action to create housing and to think about ways to make our job centers perform even better.”

Commercial business districts that are more mixed-use — meaning people can live, work, play, and patronize a range of businesses — are much healthier. And converting some office space into other uses can boost demand for commercial real estate by making an area more desirable.

“This is no longer an office market where people gravitate to the jobs, it’s the jobs that gravitate to where the people are and what the people want,” Lynne Sagalyn, a professor emerita of real estate finance at Columbia University, told Insider.

Midtown has some of the world’s greatest cultural institutions, entertainment, restaurants, and shops, and probably the country’s best mass transit access. Living within walking distance from these attractions — not to mention your office — is a strong draw, Sagalyn said.

Storefront businesses in Midtown are shifting from big box retail to food and drink establishments. Foto: Andrew Lichtenstein/Getty Images

NYC has already turned 9-to-5 neighborhoods into 24/7 locales, and now it’s Midtown’s turn

Garodnick sees Lower Manhattan as an example of how to transform a “9-to-5,” office-dominated neighborhood into a more vibrant community. Since 9/11, the financial district has more than doubled its population of residents, attracted a steadier stream of tourists, and reinvented itself as a multi-use neighborhood with a mix of offices, amenities, and homes.

A major force behind Lower Manhattan’s transformation was significant tax breaks for developers to convert office buildings into homes, and incentives for companies to relocate to the area. Back in 1995, the city implemented a generous subsidy for office conversions that helped spur the creation of more than 12,000 market-rate units over the following 10 years. After the 2001 terrorist attacks, the city introduced another incentive for developers to build and convert in Lower Manhattan. Now, about 20 million square feet of office space in the Financial District has been turned into 17,000 homes, the city reported this year.

The government incentives were key, in part because converting office buildings, factories, or other commercial space into homes can be both practically and financially unfeasible. The governor has proposed a 50% property tax break for buildings that include a certain percentage of units for lower-income residents — a policy the city supports. But the state legislature hasn’t passed it.

“There needs to be appropriate incentives in place,” Susan Mello, executive vice president and group head of capital markets at the commercial real estate firm Walker and Dunlop, told Insider. “And right now, I don’t think those are fully fleshed out in the mayor’s plan about how to address the cost side of a conversion, especially if you’re trying to convert into affordable housing.”

Mello, who called the mayor’s rezoning proposal a “good first step,” added that developers also need to be convinced that they won’t face too many bureaucratic impediments during the construction process.

“Sponsors, developers would need to see that the city is really engaged in it,” she said. “And that message is getting all the way through the entire administration, including the folks that are issuing permits.”

Foto: Luiz C. Ribeiro/Getty Images

Living in a tourist hot-spot

There are some parts of Midtown that are already bustling 24/7. Times Square is one of those, according to Tom Harris, president of the Times Square Alliance, which represents the district’s businesses. However, there aren’t a ton of apartments in the area. There are a few notable exceptions, including the glassy condo tower that rises above the M&M store at 1600 Broadway. But in general, Harris says developers aren’t keen to build housing in the tourist-packed Square, though he would welcome it.

“I’m not negating it, but certainly the opportunities south of Times Square, to the west of Times Square, are a little bit better for development of the housing stock,” he said. He added that with offices being converted into housing in other parts of Midtown, demand for commercial space will hopefully rise in Times Square.

The mix of businesses around Times Square has changed in a way that could be appealing to potential residents. Retail in Midtown has been shifting away from big box stores to restaurants, bars, delis, and bodegas for several years, Harris said. Times Square lost 179 businesses during the pandemic, but has since welcomed more than 180 new businesses into the neighborhood, according to the Times Square Alliance. And those new businesses are dominated by food and drink establishments. There is a wide range of offerings that attract a diverse array of people — from five-star restaurants like Le Bernardin and the Lambs Club — to fast-food chains like Popeyes, Raising Cane’s, and Taco Bell.

The city is investing in other major projects in Midtown, including the newly-opened Long Island Rail Road commuter hub at Grand Central Madison and new pedestrian plazas and bike lanes along Broadway. Another major policy change slated to take effect sometime next year: congestion pricing. Traffic has made a comeback in Midtown, even if workers haven’t — and New York is poised to impose a long-debated toll on drivers south of 60th Street.

Gardonick argued that the reduction in traffic and pollution the policy is expected to bring will make Midtown more liveable.

“There are billions of dollars of economic activity lost every year as a result of traffic and congestion, not to mention the headaches for residents when they hear constant horn honking and breathe the fumes of cars that can’t move anywhere,” he said.

Sagalyn is optimistic about Midtown’s future. She thinks some amount of positive change is inevitable as commercial real estate continues its downward spiral.

“If space gets inexpensive enough, things happen — not immediately, but things happen,” she said.

Read the original article on Business Insider