Reopening New York City is a bit like spinning a roulette wheel. Another massive uptick in coronavirus cases will damage the economy more, but so will keeping the city closed for the foreseeable future. The real estate industry is waiting with baited breath to see how office leasing, investment sales, apartment leasing and development will play out in the wake of the pandemic and the lockdown.
The likely middle-of-the-road outcome probably involves a downturn in the city’s commercial real estate market. The real question is how severe and for how long.
“It’s more about how long it takes to get back to an equilibrium point,” said Steve Schlegel, the tri-state market director at JLL. “I believe the office leasing market will go back to what it was before the pandemic. Worst case scenario is it takes two years to get there, best case it takes six months.”
Paul Amrich, a vice chairman and office leasing broker at CBRE, feels that the office market could return to normal by the end of the year or in early 2021.
“Before, we had a lot of large tenants signaling the fall to the end of the year for reentry [to the office],” he said. “Now we’re hearing CEOs say, 5 percent of our staff could come back in July. We could see some occupancy after July 4, and as we move through the summer and fall, that percentage will increase. We’re going to see far more deal flow.”
He added, “One thing that has become more evident as the weeks that ticked by is that people need office space. If you moved to New York to work for a big tech company, you didn’t move here to work in your studio apartment, you moved here to work in those offices.”
Some companies are already mulling expansions. A major tech company recently approached him about leasing more space in New York City this fall, the broker said.
Asking rents for office space will drop, but it’s hard to say how much.
“We will see some impact on rents, but hopefully it’s less of an impact than we’ve seen in the past because of a better recovery time period,” said Amrich. “We’ll see some level of impact, but I think our view is it’s too early to say.”
A recent report from Newmark Knight Frank noted that “office lease deals are generally moving forward if the tenant has an inflexible move date. However, if the requirement is not driven by a near-term lease expiration, the deal is likely either on hold or progressing slowly. Asset owners eager to boost occupancy may find that those tenants are willing to engage at the right price, and that outreach now can fill a void in the market.”
The outlook for retail is much more unclear. Retail rents were already down in 12 of Manhattan’s 20 major retail corridors before the coronavirus struck New York City, per NKF, and they will surely continue to fall as retailers struggle to reopen and attract customers this…