It's no secret Manhattan is an expensive place to be a commercial tenant, whether that involves taking up space in an office building or renting the equivalent of half a city block. While the cost of commercial rent in Manhattan varies based on location, it's estimated that businesses pay anywhere from $75 all the way up to $4,000 per square foot of space.
That's a huge expense to bear in the best of times. But during the coronavirus pandemic, it's been an almost impossible task for many businesses.
COVID spells trouble for retailers
Earlier in the year, nonessential stores had to shut down in an effort to curb the spread of COVID-19. Many have opened their doors again but are operating at limited capacity.
Meanwhile, consumer spending has been sluggish throughout the pandemic, as many Americans are grappling with income loss or job-related insecurity. And let's not forget that tourism is down in New York City, as it is for many major metro areas. Throw in the fact that residents have been staging a mass exodus from Manhattan in response to the events of the past six months, and it's no wonder so many businesses are starting to rethink their plans to stay in one of the priciest cities in the country.
In fact, a number of well-known retailers have already left Manhattan or are making plans to do so. J.C. Penney (OTC: JCPN.Q) is shuttering its New York City locations for good, as is high-end department store Neiman Marcus. Meanwhile, retailers that have yet to officially abandon Manhattan are keeping their doors closed or withholding rent.
All of this is bad news for commercial landlords in Manhattan and real estate investors as a whole. If a Manhattan exit sparks a national trend, cities across the country could soon face their share of retail vacancies -- and investors could face their share of losses.
Will retailers start to leave more major cities behind?
Though operating a store in a place like Manhattan comes at an astronomical cost, the upside is greater foot traffic and exposure. But given that stores still can't operate normally due to the ongoing pandemic, it makes sense that some retailers would seek to leave New York City, especially at a time like this.
The fear, however, is that this trend may not be limited to Manhattan. As more city dwellers make plans to head to the suburbs and companies keep offices closed well into 2021, a growing number of retailers may not be able to keep up with city rent, having no choice but to close down locations and take their business elsewhere.
Of course, it is worth noting that New York City has been subject to particularly stringent lockdown measures since the COVID-19 crisis began, given it was initially the epicenter of the outbreak. But retailers in other cities may be faring better than they've been in Manhattan, all the while paying a lot less of a premium for the privilege of being there.
The bottom line
It's ultimately too soon to tell whether retailers will start leaving cities in droves, but one thing's for sure: The fact that so many are abandoning Manhattan should, at the very least, give real estate investors pause.