Friday, September 20, 2013

In IBO report on city's future office needs, a mention of Atlantic Yards capacity, but no assessment it's likely

A new report by the Independent Budget Office, at the request of Manhattan Council Member Daniel Garodnick, aims to assess whether the Bloomberg Administration’s plan for rezoning East Midtown "will foster an over-supply of office space in the coming decades."

The answer in Is the City Making Way for More Office Space Than Needed Over the Next 30 Years?is no, more or less,, though the IBO acknowledges considerable uncertainty. Here's coverage in the Daily News, Capital New York, and Crain's.

Then again, even recent history shows that office space projections can be way off. Sen. Chuck Schumer's Group of 35 report in 2001 predicted a huge need for office space in Downtown Brooklyn, which didn't come to fruition. As the Wall Street Journal reported:
Indeed, few researchers could have predicted the recent changes in the city's office market. Since Hudson Yards was rezoned and construction began on the World Trade Center project, a recession sapped demand from the financial-services companies that typically dwell in new skyscrapers. Meanwhile, small technology companies have turned up their noses at traditional towers and created a boom for old industrial buildings.
And if you read between the lines, though the IBO in three places mentions Atlantic Yards, where there's a stalled plan for an office tower, the agency does not assume it will be built.

An AY mention

The first mention of AY comes near the top:
Because of such concerns, at the request of Council Member Daniel Garodnick, IBO has updated its 2004 projections of office needs in the city. In this new report IBO projects growth in office-using employment over 30 years to 2040 and compares it with an updated estimate of new commercial space already being developed as well as what may be developed in the coming years at Hudson Yards, the World Trade Center, Downtown Brooklyn, Atlantic Yards, and other locations in the city.
The IBO acknowledges uncertainty, given "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." Also, no longer does the financial sector provoke growth in office employment, but rather businesses with "different needs and work styles: media, technology, and design."

Three scenarios

The IBO developed three scenarios. Based on the midrange scenario, it forecasts a need for about 52 million square feet of office space through 2040, which could  support the full buildout of Hudson Yards, the World Trade Center, and other sites throughout the city, including East Midtown.

However, office space could be as low as 30 million square feet or as much as the 87 million square feet estimated, more or less, cited by the Bloomberg Administration.

Given the uncertainty surrounding estimates of the need for office-using space, the report also considers the risks tied to funding pedestrian, subway, and other improvements in East Midtown with revenue generated by the sale of additional development rights.

Space per worker
The IBO notes that office designers historically estimate that workers require 250 square feet of space per person, but that amount has steadily fallen recently, "for a variety of reasons, including the decreasing need for file storage and server space, the increasing popularity of open floor plans, a renewed focus on controlling costs."

Note that Forest City Ratner used 200 sf/worker for Atlantic Yards at a time when government agencies used 250/sf. Should an Atlantic Yards office tower ever be built, it might hold more workers than previously estimated.
Then again, as Bruce Ratner told Crain's in November 2009: “Can you tell me when we are going to need a new office tower?”

Factors affecting long-term demand

The IBO also cites conversion or demolition of existing office buildings and changes in how office space is used:
For the purposes of this analysis, IBO has assumed that by 2040, owners of office properties in Manhattan’s central business districts 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 percent of those neighborhoods’ prewar office space and 5 percent of its space built from 1946 through 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. If employment growth remains steady, the market would need to replace the space that is lost.
As for buildings currently under construction, most is in Manhattan, in 1 and 4 World Trade Center, then Hudson Yards. Smaller projects include 1000 Dean Street in Crown Heights./


Future development sites

In its list of future development sites, relying on the 2012 Hudson Yards bond offering and more recent information, the IBO cites "the conversion of the Domino Sugar Factory in Williamsburg, Brooklyn... and the Jehovah’s Witnesses’ Watchtower properties in DUMBO." (Note that most of the Domino property is not being converted; it's being demolished for new construction.)

AY: part of capacity, is it likely?

The report also cites additional capacity in Brooklyn and Queens:
The rezonings of Downtown Brooklyn, Atlantic Yards, Long Island City, and Jamaica collectively included the potential for nearly 12 million square feet of office space. These rezoning initiatives reflect the efforts of multiple mayoral administrations to expand the city’s central business district into the other boroughs.In the years since the plans were approved, residential properties have accounted for nearly all new development in those areas, though there remains additional capacity should a market develop for modern office space in the other boroughs. Since 2006, developers have built three new build-to-suit office buildings totaling 1.4 million square feet in Long Island City, though no new projects are proceeding there at the moment.
Since a detailed site-by-site review of these areas was beyond the scope of this paper, IBO instead assumed that one-quarter of the nearly 12 million square feet of development rights created in the rezonings are still unused, which would translate into as much as 2.9 million square feet of office space that could be built in Brooklyn and Queens.
Actually, Atlantic Yards was not rezoned; it was a state override of zoning. And while " a detailed site-by-site review" is understandably difficult, it's well-known that Forest City Ratner and parent Forest City Enterprises have said nothing about an office tower recently.

Indeed, the IBO acknowledges:
Not all of these sites will ultimately be developed as office buildings. The fact that a site is zoned for office development does not guarantee that its owner will ultimately build new office space, particularly if there is little demand in that location or if there is a "higher and better use" for the land. As noted, the owners of several sites in Downtown Brooklyn and Midtown West have opted to build residential or hotel projects instead of office buildings in locations where the zoning rules allowed either use.
While it may at some point become financially wise to build on the Atlantic Yards plaza, I suspect that Forest City and some backers will make the argument that the "high-low city" is worth keeping. (Would they ask for something in return, like a transfer of development rights?)



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