Booster shot: NYC real estate sees salvation in vaccine

Industry experts are watching rollout closely

(Getty, iStock)
(Getty, iStock/Illustration by Alexis Manrodt for The Real Deal)

It’s one of New York City’s biggest real estate events of the year: Thousands of attendees fill the Jacob Javits Center for the International Council of Shopping Centers retail show.

The December event was canceled, as virtually everything was last year. But today, Javits is one of the vaccination sites the real estate industry is counting on to bring New York back to pre-Covid life.

In the parlance of real estate, widespread vaccination is seen as a leading indicator. Real estate’s recovery is expected to follow, though some segments are expected to take longer than others.

“I think you’re going to have pockets of real explosive growth,” said Marcus & Millichap’s Eric Anton, who noted decimated sectors like retail and hospitality have the most potential to rebound. “I think it will spur confidence in multifamily in New York and New Jersey, which seem to be tumbling beyond recognition.”

Some sectors are primed for a fast comeback. Hotels, for example, are among the assets most sensitive to changes in the economy, as their room rates are essentially reset every night. Many experts believe that once business travel and tourism return, the hotel industry will bounce back relatively quickly.

Dr. Anthony Fauci last week told a group of performing arts professionals that theaters could be able to open later this year.

“If everything goes right, this will occur some time in the fall of 2021,” said Fauci, according to the New York Times. “So that by the time we get to the early to mid-fall, you can have people feeling safe performing on stage as well as people in the audience.”

For other types of real estate, such as offices, recovery may have more to do with how work patterns change than with vaccinations. Others, such as multifamily apartments, will have to factor in things like eviction moratoriums and federal financial support, on top of changes from the 2019 rent law.

New York City administered its first coronavirus vaccine Dec. 15, and this week Gov. Andrew Cuomo expanded the list of those eligible for one to include individuals 75 and older. But the rollout has had its share of challenges, such as reports of pharmacies throwing out expired vaccines or distribution sites booking more appointments than they had vaccines to accommodate.

It’s unclear when enough people will get vaccinated to allow for the economy to significantly reopen.

For the real estate industry, there is plenty of room for recovery following a year when business all but shut down.

Investment sales in Manhattan, for example, were off 51 percent in 2020 compared to the year prior, according to Avison Young. The borough recorded just $8.5 billion worth of deals.

Manhattan retail, meanwhile, recorded its sixth-straight quarter of declining leasing volume at the end of 2020, according to CBRE. Retail leasing over the previous 12 months dropped below 2.1 million square feet, according to the brokerage.

And office leasing hit a record low in 2020, as Manhattan recorded just 19.4 million square feet of leases, Avison Young noted. That was down 51 percent from the year before and more than 20 percent below the previous record low of 25 million square feet in 2008 at the onset of the financial crisis.

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Prior to Covid, the office leasing market had some of its best years ever. Although it’s not clear when, if ever, the sector will return to pre-pandemic levels, when landlords and tenants return to the negotiating table, they’ll find a different dynamic.

“There’s going to be a period, and who knows how long it’s going to last for, where tenants are firmly in the driver’s seat,” said Bill Montana at Savills.

Manhattan’s vacancy rate stood at 14.2 percent at the end of 2020, according to Avison Young. Industry experts generally agree that when the rate exceeds 10 percent, the market favors tenants over landlords.

Many large office occupiers put leasing plans on hold when Covid hit and the state temporarily halted in-person showings. Some kicked the can down the road with short-term renewals. But there’s a constant churn of expiring terms across the city, meaning company CEOs face some kind of decision on their spaces, pandemic or not.

Montana said those companies and their real estate advisers are watching the headlines like everyone else. By the time the city gets to herd immunity and workers are back to their office buildings, the occupiers will already have been working on their plans to lease new spaces, reconfigure their current ones for social distancing or figure out some kind of mix between working from home and the office.

“The smart ones are already thinking about that now,” he said. “They’re not necessarily pulling the trigger, but they are aiming the gun.”

Returning to the office is a big part of Gov. Andrew Cuomo’s road to recovery for the city. The governor on Tuesday revealed a plan to make rapid testing available to get people back in offices and restaurants.

“Office buildings are the engines of our economy,” he said. “Bringing workers back safely will boost ridership on our mass transit, bring customers back to restaurants and stores and return life to our streets.”

Thomas Flood of Richland Management, based in Great Neck, urged the governor in a letter to include superintendents, porters and other essential building staff in the early vaccination rounds.

“It did not surprise me when I learned that a doorman in the Bronx was one of New York’s first fatalities,” he wrote. “It is consistent with the type of service that these workers provide and the care that they extend to our residents. Most days I worry over the continued risk that my staff take and the implications this has for the health of our residents and operation of our buildings.”

For some areas of real estate, though, recovery is already underway.

Manhattan apartment rentals surged to their highest levels since the financial crisis from October through December as falling rents enticed tenants to ink new deals, according to Miller Samuel.

Joe Ben-Zvi, co-founder of leasing automation company Vero Leasing, said many of the enticements landlords are offering to fill apartments will remain for some time.

“The amount of absorption it’s going to take to subdue those incentives is going to take several leasing cycles,” he said. “Just because the virus no longer around doesn’t mean those incentives will go away.”