Revenue Comparison: Observation Decks vs. Office Space

The iconic Empire State Building, a testament to New York City's skyline, has long been a symbol of American architecture and tourism. Interestingly, despite being a premier office space in the heart of Manhattan, its revenue comes not from renting out office or residential space, but rather from its observation deck fees. This raises the question: is the Empire State Building making more money from its observation deck?

Empire State Building's Revenue

According to recent data, the Empire State Building indeed generates a larger share of its income from observation deck fees and tourism-related activities than from office space rentals. This phenomenon is not unique to the Empire State Building; other iconic buildings like the Sears Tower (now Willis Tower) in Chicago also follow a similar pattern. On a per square foot basis, the observation deck of the Empire State Building is far more profitable than the typical office space.

High-Rental Ground-Level Spaces

Examples like the Apple store on Fifth Avenue, which grosses about $50,000 per square foot annually, provide a clear illustration of the potential profitability of ground-level commercial spaces. Other high-end retail spaces, such as luxury jewelry stores like Van Cleef and Arpels, have been rumored to gross up to $35,000 per square foot annually. While these figures demonstrate the potential revenue, they are often exceptions rather than norm.

Empire State Building's Current Revenue

Based on the figures from the fourth quarter of 2021, the Empire State Building's observation deck generated approximately $32.3 million in revenue. Meanwhile, the building's 2.158 million square feet of commercial space, typically renting for about $70 per square foot, brought in an estimated $150 million in revenue—an amount nearly five times that of the observation deck. However, it's essential to consider that not all of the commercial space is occupied at any given time, which can significantly impact the actual revenue per square foot.

Profit Analysis

It's crucial to understand that the observation deck's revenue is primarily profit, with expenses amounting to approximately $8.5 million, leaving a profit of $23.8 million. When compared to the net operating cash flow from commercial rents, which is likely around $125 million, the observation deck's profit represents a smaller portion. However, it must be noted that building-wide expenses—such as interest, property tax, and insurance—are not allocated consistently across different revenue sources, making it challenging to provide an exact comparison.

Conclusion

While the Empire State Building undoubtedly generates substantial revenue from its observation deck, it is still a significant contributor to the building's overall economic success. The high-profit margins from the observation deck are a testament to the building's standing as a premier tourist destination. As New York City continues to evolve, it is likely that the financial balance between office space and observation deck revenue will continue to shift, driven by changing market conditions and tourist trends.