The coronavirus pandemic forced a lot of businesses to shutter permanently in its wake. That's been bad news for real estate investors -- notably, commercial landlords for whom vacancies instantly translate into lost revenue.
In New York City, business closures were far from the norm this past year and some change. Early on in the outbreak, the city was dubbed the pandemic's epicenter, and restrictions were put into place that many establishments just couldn't survive. But now, leasing activity is picking up in New York City, and its primary source may be surprising.
Restaurants are opening up
Of all the industries that were impacted by the pandemic, restaurants were hit particularly hard. Not only were they forced to shutter early on in the outbreak but they also endured months of operating restrictions and curfews that resulted in serious revenue declines.
But during the second quarter of 2020, restaurants were the most active in signing new leases across Manhattan, according to commercial real estate services firm CBRE. Given the way so many restaurants are still struggling in the pandemic's wake, that's somewhat unexpected.
Right now, restaurants are grappling with supply chain issues that are making it difficult to get their hands on the products they need. They're also dealing with labor shortages as many workers reassess their career paths and move away from an industry that's notorious for underpaying employees while subjecting them to demanding working conditions.
Restaurants, like all businesses, are also dealing with inflation. But whereas other businesses may have more robust cash reserves, a lot of dining establishments are still in financial-recovery mode following the events of the past 17 months.
Still, it does make sense that restaurants would comprise a large chunk of new lease deals in Manhattan, given the number of dining establishments that closed during the pandemic. Across Manhattan, restaurant chains locked in 23 deals during the year's second quarter, totaling 83,333 square feet of space.
Of course, from a tenant perspective, now's actually a great time to sign a lease in Manhattan. Average asking rents fell 10.7% year over year during the quarter to $615 per square foot, and currently, commercial rents are at their lowest in almost a decade. It makes sense that restaurant owners would want to capitalize on those deals while they're available, even if that means opening a food establishment at a rather precarious time.
Either way, the fact that leasing activity is up in Manhattan and that restaurants are fueling that trend is a good thing for the city's real estate investors. If more dining establishments open their doors, it will only help bring people back to a city that suffered a mass exodus last spring when the pandemic really hit home.
Commercial landlords in Manhattan are not the only ones who have grappled with vacancies either. Residential landlords, over the course of the past year, have been so desperate for tenants that they've been giving away free rent. The fact that restaurants are opening up should give investors hope that there are plenty of signs of life in the city and that it's on its way to staging a highly anticipated recovery.