When the coronavirus pandemic first came to the U.S., New York City was declared its epicenter. That led to a mass exodus of renters, who were quick to abandon their tiny apartments in favor of larger suburban homes.
In fact, 2020 was a terrible year for both residential and commercial property owners in New York City. Sluggish retail sales, low levels of tourism, and remote work converged as an all-out assault on commercial real estate investors. And now, as a new year unfolds, many are wondering how long it will take for the city to recover.
In the absence of a crystal ball, there's no clear answer. But it's fair to say New York City's real estate market could take years to stage a comeback.
Apartment vacancies abound
New York City landlords found themselves growing increasingly desperate last year as apartment vacancies soared. In fact, many had no choice but to offer months of free rent in an effort to entice tenants to commit to leases.
In December, the median rental price of a Manhattan apartment was $2,800 a month, down 17.3% from a year prior. And while there was an uptick in leasing activity toward the end of 2020, the vacancy rate, which sat at 5.5%, was the third highest on record. Furthermore, many insiders feel that vacancy rate doesn't accurately represent the true number of unoccupied apartments when accounting for properties that are purposely being held off the market to avoid driving prices down even further.
But it's not just residential buildings struggling with vacancies. Manhattan now has the most available office space since 2003, and in November, the availability rate jumped to 13.5%. Meanwhile, commercial property sales in New York City declined by almost 50% through October, and that number could climb in the coming months due to a lack of demand.
What it'll take for New York City to rebound
Clearly, it's a bad time to own property in New York City -- though it may be a good time to buy property, given the potential to score a huge discount. But that doesn't mean New York City is permanently doomed. Rather, investors will need to sit tight and be patient as the city slowly but surely digs out of its slump.
For New York City to stage a full-fledged recovery, a few key things need to happen:
- Tourism needs to pick back up: The absence of tourists has plagued New York City hotels, causing several prominent properties to close. Once it's safe for tourists to explore the city once again, they'll be apt to pump money into restaurants, retailers, and other businesses.
- Office buildings need to become safe and appealing again: Many companies are keeping their staff remote during the pandemic, and the fear is that a lot of employers will maintain a permanent work-from-home setup when the crisis is over. But once congregating in offices becomes safer, many companies may opt to have staff return, and employees suffering from work-from-home fatigue may be eager to start showing up. Furthermore, once coronavirus is less of a threat and in-office work becomes a mandate, more people may opt to move back to the city to avoid lengthy commutes.
- Nightlife needs to get back to its former glory: These days, Broadway is shut down, sporting events are going off without fans, and concerts aren't happening. Restaurants, meanwhile, are grappling with capacity limits. All told, New York City nightlife is a shadow of what it once was, but once it becomes safe to open back up, rental demand is likely to boom as former city dwellers aim to get back to the amenities they've missed.
The Millionacres bottom line
The punchline? New York City's real estate market can recover, but only once the pandemic is largely brought to an end. The rollout of vaccines may do a good job of kick-starting that process this year, but it may be quite some time before it's safe to open a concert hall to 10,000 people or cram 20,000 into a sporting arena. As such, New York City's rebound won't happen right away, but in time, it's likely to get there.