In August, art-world heavyweight Larry Gagosian paid $36.5 million for the Harkness Mansion, the Upper East Side spread that financier J. Christopher Flowers had bought for a record-breaking $53 million in 2006.
To some observers, the fate of the property illustrated the gulf between today’s residential market and the pre-crash boom. However, the art mogul’s purchase could also be a symbol for a longer-term trend affecting residential real estate: the gradual loosening of Wall Street’s grip on the city’s economy — and the growing number of New Yorkers working in education, health care, business services and creative fields.
“The first thing to understand is that this trend is several years in the making,” real estate consultant Nancy Packes said. “I do not think that this is a blip or an anomaly.”
In 2005, the broad category of financial professionals accounted for about 58 percent of renters in Manhattan below 96th Street. As of May, they made up only about 45 percent, according to a report Packes compiled in collaboration with real estate listings website StreetEasy. Meanwhile, in the same time period, creative workers (including those in media and fashion) doubled their share of the rental pool, from 8.6 percent to 17 percent.
Technology workers made up 11.6 percent of renters, up from 7.2 percent.
Those numbers echo labor trends across the city.
Between August 2005 and August 2011, the most recent month for which statistics are available, the number of jobs here in commercial banking, commodities and securities declined 4.2 percent, from about 263,800 jobs to 252,800, according to data from the New York State Department of Labor and Eastern Consolidated.
Wall Street was hit particularly hard by the financial crisis, shedding 3.5 times as many jobs as other sectors, according to the Office of the State Comptroller (see related story here).
Some of those jobs have come back in the last year, but the growth rate is a fraction of the level of job gains being seen in business services (which includes the fields of law and accounting), as well as in education and health care, the state data shows.
In fact, Wall Street employment has come back weaker after every downturn since the early 1990s, owing partly to outsourcing and the automation of work, said Doug Turetsky, chief of staff of New York’s Independent Budget Office.
“That has been the general trend after each successive downturn in recent periods: Wall Street comes back, but it doesn’t come back with quite as many jobs as previously,” he said.
It’s no surprise then that the IBO projected in May that Wall Street would contribute only 5.4 percent of the city’s employment growth through 2015, while half of all job gains would come from business services and education and health.
Though experts said diversification — a stated goal of the Bloomberg Administration — is a positive for New York’s economy, the occupations overtaking finance pay far less than the average job on the Street, heralding a shift in the market for high-end real estate.
According to Packes, the residential sale market will feel the biggest hit, as lower-paid workers in non-finance industries are priced out of buying. “The impact on rentals, therefore, is actually in some ways positive, as more people are in the job market at levels of compensation that don’t qualify them for the Manhattan sale market,” she said.
In 2008, six of the top 10 priciest residential deals in Manhattan involved Wall Street buyers, including three hedge-funders and the former executive vice president of Merrill Lynch & Co. Inc., according to an analysis of data provided by StreetEasy. That number, however, has fluctuated in the last five years. So far in 2011, only three of the top 10 sales have been credited to finance bigwigs.
Shifting labor demographics could also affect new developments, as creative and tech workers seek out “San Francisco-like” neighborhoods such as the East Village, Long Island City and parts of Brooklyn, Packes said.
Developers are already asking how to tailor unit mixes and amenities to cater to this new class of workers, she said.
Across the river, Peggy Aguayo of Brooklyn brokerage Aguayo & Huebener said that buyers from the world of finance have historically fueled both mid-level and pricier sales, but since the financial crisis, the breakdown has changed. Wall Street buyers continue to dominate high-end home sales (in the $2 million to $4 million range), but these days professionals in film, publishing and IT are buying up more of the mid-range properties, she said.
Of course, Wall Street continues to be a driving force in the residential market, mainly due to its disproportionate hold on the city’s wages.
“Even as it’s come back a little bit smaller, [Wall Street] still plays a huge and outsize role in the local economy,” Turetsky said. “And that’s simply because the salaries paid there are just so huge.”
Wall Street bonuses, of course, also continue to hold sway over residential sales.
Failing to get an anticipated bonus impacts a financier’s decision to buy, said Gary Malin, president of Citi Habitats. “That’s really something we need to watch,” he said.
In 2010, total bonuses were a third lower than their peak in 2007, as Wall Street, under scrutiny from regulators, shifted away from incentive pay in favor of higher base salaries and deferred compensation.
For 2011, incentive pay at asset management firms will largely stay flat, while investment and commercial banks could see bonuses drop by 10 percent, according to an August report from compensation consulting firm Johnson Associates Inc.
Still, so far the economic turmoil that ushered in August has not had a sweeping effect on the real estate plans of Wall Streeters, brokers said. “People at this point are proceeding and not getting caught up with the daily up-and-down market,” said Jill Sloane, an executive vice president at Halstead Property. “At least that’s what I found.”
While some may hold off on residential transactions for six months or a year, particularly newer employees, or those who work in departments with steeper losses, others are swooping in to snap up deals, Malin said. “A lot of them are just trying to figure out what their exact circumstances might be.”
And, he added, plenty of financiers want to live in places like the East Village. Indeed, diversifying New York’s economy is not a bad thing, Malin said. “As long as employment is strong, and more people are being hired, it’s going to have a positive effect on the real estate market.”