Despite near record-high office vacancies, Gov. Kathy Hochul has backed a real estate project at the New York transit hub that would be one of the largest in American history.

The rapid shift to remote work during the pandemic has battered the commercial real estate industry, a cornerstone of the New York City economy.Credit…

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By Matthew Haag and Patrick McGeehan

Photographs by Andres Kudacki

In a bid to reshape Midtown Manhattan, Gov. Kathy Hochul and New York State officials are pushing ahead with one of the largest real estate development projects in American history: 10 towers of mostly offices around Penn Station, the busiest transit center in the country.

The buildings would help pay for the renovation of the dreary underground station, the reason officials have said they are seeking the additions to the skyline. But the plan is moving forward amid severe uncertainty gripping the office market: Many companies are trying to reduce their real estate footprint as workers continue to clock in from home.

A clue to whether the project succeeds may lie two blocks to the west, in the Hudson Yards neighborhood. Development there has not met expectations three years after a slate of new construction — including office towers, retail and residences — opened with grand ambitions. Major office tenants there are downsizing amid the stubborn popularity of remote work, and a quarter of the ultraluxury condos remain unsold.

The New York City economy has changed drastically since government officials and developers first touted plans for the Hudson Yards area over a decade ago, and it has been transformed even more during the pandemic. Major corporations that moved to the neighborhood, including WarnerMedia, JPMorgan Chase and IHS Markit, are now trying to unload floors of unused office space.

Still, with the Penn Station project, Ms. Hochul is doubling down on a legacy-defining bet that white-collar workers will eventually return to Midtown, and that firms will be hungry as ever for office space.

Ms. Hochul has argued for the state’s powerful role in the project, in which it has overstepped New York City’s zoning rules to allow the developers of the sites — most of which are owned by one company, Vornado Realty Trust — to build taller and larger than they otherwise could have. Mayor Eric Adams announced his support for the project after the state clarified that the city would not lose property tax revenue on it. It won’t gain much, either.

Boosters of the Penn Station plan often frame the fixes at the station, which are estimated to cost $7 billion and be completed by 2027, as the project’s centerpiece. The plan would add taller ceilings and new entrances to the station but no additional tracks or platforms. But the plan’s most significant impact would be the new buildings, which are expected to take two decades to complete and require the demolition of numerous properties on several blocks, including a 150-year-old Roman Catholic church.

For its supporters, the Penn Station project is an emphatic endorsement of New York City’s future and an overdue jolt to a drab area of Manhattan. They say that the universally disliked station desperately needs to be revamped and that it makes sense to build towers around it.

“We need a Penn Station that has more capacity, that’s more unified and that is safer and able to serve the region like Grand Central,” said Brian Fritsch, the communications director at Regional Plan Association, a research and advocacy group.

But critics warn that the development could become another Hudson Yards, a luxury neighborhood aided by tax breaks that largely benefited a single developer and unwisely depended on offices full of workers and an endless supply of wealthy buyers for high-rise condos. New York may never be the same city it was before the pandemic, those critics caution.

Nearly 37 percent of all office space in the Hudson Yards neighborhood is available for lease, the highest rate in Midtown, according to the real estate firm Avison Young, a figure recently driven up by the opening of new commercial buildings and companies trying to find other tenants to take over their floors. More than half of all office construction in Manhattan, about seven million square feet, is under development there.

“Tenants move from building to building, and if there is insufficient growth due to the remote-work phenomenon, which is here to stay, there will be landlords who are left with empty offices,” said Ruth Colp-Haber, a commercial real estate broker.

By 2044, when the last of the Penn Station redevelopment towers are slated to be finished, the project and Hudson Yards will very nearly form a contiguous corridor of gleaming glass and steel towers. Between 30th and 34th Streets, clusters of some of the tallest buildings in North America will stretch from Sixth Avenue near the Empire State Building to the eastern edge of the undeveloped train yards that border the West Side Highway. Together the two areas would represent over 30 million square feet of buildings, with the vast majority designed for office tenants.

Manhattan had 463.8 million square feet of office inventory as of the middle of last year, accounting for nearly 11 percent of all office space in the nation, according to the New York State comptroller.

The first part of the Hudson Yards project, led by the billionaire Stephen Ross at Related Companies, one of the largest real estate firms in the world, opened in spring 2019 to huge fanfare. Many companies had vied for the development rights, but Related came out on top, agreeing to pay $1 billion to the owner of the yards, the Metropolitan Transportation Authority.

The Hudson Yards development opened with a seven-floor mall filled with high-end retailers like Fendi and Dior; four office towers, including the fourth-tallest office building in North America; and two residential buildings, whose condominiums sell for about $5 million apiece.

The economic turmoil stirred by the pandemic has dashed Hudson Yards’ plans. Three years later, the marquee retailer at the mall, Neiman Marcus, has left its three-story store. The parent company of Facebook, which before the pandemic signed an office lease for 1.5 million square feet in Hudson Yards, recently said it would pause its expansion there. Subway ridership at the local station was down roughly 40 percent during the first two weeks of this month compared with the same period in 2019, reflecting the commuters and consumers who have yet to return.

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