The wave of construction that reshaped Manhattan’s skyline? It is over.

Manhattan’s office building boom is over.

Only three major office towers – over 500,000 square feet – are being built in New York City, two of which are expected to open in 2024 or 2025 and nothing else is expected to be built for several years. Normally, a handful of locations of this size would be in various stages of construction, with at least one opening per year since 2018, according to JLL, a real estate services firm.

Nearly two dozen large office buildings that developers have proposed, including the last tower near Ground Zero, have yet to break ground. Many have been put on hold indefinitely as developers face numerous challenges.

Rising construction costs and interest rates have significantly driven up the price to build. Banks are increasingly reluctant to finance such constructions, while Manhattan has a record number of office vacancies. And few major tenants, who must get a line from lenders before a new office can be built, are actively looking to move.

As a result, Manhattan is experiencing its worst office construction drought since the savings and loan crisis of the late 1980s and early 1990s. Developers are now admitting that the next wave of major office towers may not open until the early 2030s, if not later.

“It’s hard to justify putting a shovel in the ground when the fundamental supply-demand ratios aren’t right,” said James Millon, president of CBRE, a real estate services firm that helps developers secure capital.

In a city usually teeming with cranes, the current lull in new office projects marks the end of a quarter-century of construction, resulting in glass and steel towers that reshaped Manhattan’s skyline and filled with growing businesses , especially in the United States. technology sector.

The pause contrasts with other metropolises, including London, where demand for new office space remains relatively robust. Ten buildings have recently been approved for construction in London’s financial district, including the tallest building in the area.

In New York City, however, officer developers are still reeling from a one-two punch. The initial shock of the pandemic upended corporate work culture, causing many companies to reduce their footprint due to remote working. Then came the aftershock of rising interest rates: kryptonite for an industry built on debt.

As a result, the pause could negatively impact the city’s budget at a time of financial cuts. Office buildings have an outsized influence in the city: they significantly increase the value of the land on which they stand and are responsible for one-fifth of all property taxes collected annually by New York City, which relies heavily on property taxes to fund basic services .

The cost of building the largest office buildings can easily exceed $3 billion, and they take years to complete, creating thousands of construction jobs. In the years before the pandemic, construction spending in New York City on non-residential projects, including offices, averaged about $21 billion per year. according to the New York Building Congressa trade group for construction and real estate companies.

At a ceremony last month honoring the final steel beam installed in the new JPMorgan Chase Building, Mayor Eric Adams compared the period to the opening of the Empire State Building during the Great Depression. That building was one of the last major offices to open before a twenty-year hiatus.

According to CBRE, more than 52 million square feet of offices have opened in Manhattan since 2000. On the west side, an entire neighborhood rose above railroad yards; the tallest building in the Western Hemisphere – One World Trade Center – rose downtown; and skyscrapers rose near Grand Central Terminal.

But today it’s a completely different story. At the end of November, nearly 18 percent of all office space in Manhattan was available for lease, the highest percentage since Colliers, a real estate brokerage firm, began tracking it in 2000. By itself, the available space could fill 27 One World offices. Trade centers.

Real estate agents say some of that space is concentrated in older office buildings, built just before and after World War II, that most companies consider obsolete.

“One of the biggest problems we’ve had in the city, and it’s like it’s never noticed, is how old the office stock has become,” said Mary Ann Tighe, a prominent real estate agent and CEO of the New York Times. CBRE’s York Tri-State Region.

Ms Tighe said elected officials, who have become increasingly hostile to the real estate sector, should encourage office development. “We have to keep reinvesting and you have to make it easy for people,” she said.

But Sen. Liz Krueger, a Manhattan Democrat, said the most pressing question about Manhattan’s offices is not when the next office will be built, but what will happen to all the empty space, including how more workers can return to their desks . “The opposite discussion is taking the lead,” she said. “How can we convert surplus offices into homes?”

Despite the headwinds, many office developers are still eager to build the next super-tall tower. They believe the pandemic has accelerated a so-called flight to quality: companies upgrading to the latest, greatest offices.

They point to the new JPMorgan Chase Building on Park Avenue and One Vanderbilt, the 400-foot tower next to Grand Central Terminal that opened in 2020. One Vanderbilt is more than 99 percent leased, with some tenants paying $150 per square foot and up.

“If JPMorgan builds this brand new headquarters, JPMorgan’s competitors will want to be in that kind of space too,” said Scott Rechler, the CEO of RXR, a real estate company.

RXR has proposed one of the largest office buildings yet to be built, at 175 Park Avenue, on the site of a Grand Hyatt hotel in Midtown Manhattan. Mr. Rechler hopes to break ground next year, but the tower needs an anchor tenant, a large company that could commit to leasing about a quarter of it, which would be about 500,000 square feet.

Another developer, Silverstein Properties, has been looking for an anchor tenant for 2 World Trade Center in Lower Manhattan for about 15 years. Also waiting is BXP, the real estate investment trust formerly known as Boston Properties, which plans to build a roughly 900,000-square-foot tower on Madison Avenue.

A handful of significantly smaller office buildings in Manhattan, mostly between 15 and 25 stories tall, are being built without tenants already lined up. Real estate analysts say these buildings pose much less risk to lenders and don’t face the same hurdles as large new construction projects.

When the construction drought ends, analysts and real estate agents say the highest rents and revenues any office developer has collected in New York City will follow.

At the end of November, the average asking rent for office space in Manhattan was $75 per square foot. With the higher interest rates and higher construction costs, developers would have to charge $200 to $300 per square foot for a future office tower to make financial sense, they said.

“There are a handful of trophy buildings in New York that can get these kinds of rents,” says CBRE’s Mr. Millon. “But space is limited: you will have to take something down to be able to continue with it.”