That empty feeling
Grim predictions for city’s commercial real estate
It’s been 10 months since most city office workers have been back in their buildings, and since thousands of chain stores and small businesses have shuttered due to the pandemic — and with the slow-rollout of the COVID-19 vaccine on top of an already devastating economic downturn, some experts say the financial impact on commercial real estate will likely continue well into next year, and beyond.
More than 1,000 chain stores citywide have closed over the last year, according to a new report from the Center for an Urban Future. At the same time, the number of new construction filings last year was the lowest it has been in 10 years, the Real Estate Board of New York reported last month.
The city and state also collectively lost $1.6 billion in tax revenue. A large chunk of those losses can be attributed to a 49% drop in investment sales and residential sales, according to another December report from the board.
“Despite the arrival of a vaccine and minor upticks in recent market activity, New York’s economic crisis grows,” Real Estate Board of New York President James Whelan had said, calling for federal relief.
That downward trend will likely continue if New York doesn’t expedite the distribution of the COVID-19 vaccine, said national real estate appraiser Jonathan Miller, co-founder of the real estate firm Miller Samuel Inc.
“For landlords, whether in small, medium or large buildings, there’s no hurry to bring people back until the vaccine is fully distributed. And we have no idea when that’s going to be,” he said.
“Up until sometime in September, the corporate answer to [the question,] ’When are you bringing your workers back in [office]?’ was the end of the year,” he added. “And now it’s the summer — and who knows if that that’ll be kicked down the road further if the vaccine distribution continues to have the problems it has.”
Gov. Cuomo vowed to speed up the COVID immunization process last week, expanding eligibility to teachers, elderly people and first responders. He also threatened to fine — and even pull immunizations — from hospitals that could not keep up, and criticized Mayor de Blasio and other city officials for what he called a lack of “urgency” regarding immunization efforts.
But just how quickly those vaccinations will get people back in the workplace remains to be seen.
“Until then, street level retail and business districts [are] going to see very limited occupancy, and the residential rental markets surrounding the central business districts are going to be struggling with high vacancy,” Miller said. “The way I’ve been describing is it’s a V-shaped recovery — but V also stands for vaccine.”
Yet there’s also some promising news: November saw the highest number of new lease signings in Manhattan for any November in the last 12 years, according to a report from Douglas Elliman Real Estate.
That’s a stark contrast in the rental market compared to June, where the borough reported the highest vacancy rate in nearly 14 years, and the lowest number of June new lease signings in nearly a decade.
“The rents had fallen so much [last summer] that they hit a point where they started pulling people in. This is also going to happen in commercial [real estate] where there’s going to be this period of price discovery,” Miller said.
“Fortune 500 companies aren’t necessarily going to leave [their office buildings,] but maybe they’re going to downsize their footprint,” he added, noting that the Zoom, work-fromhome era will factor into these decisions.
“So that excess square footage becomes much more affordable to say, a second-tier company that’s coming in. And I think that’s how this is gonna end up playing out.”