A Tale of Two New York Cities

It’s a tale of two cities… to coin a phrase. New York Magazine has decided that New York is coming back to life. Luxury real estate is reviving, the magazine tells us, and this counts as a harbinger of New York City’s resurgence. 

After ten months of breathless panic over the state of Manhattan’s luxury real-estate market, the industry is sighing with relief as a surge in leases and rental prices suggests that the wealthy New Yorkers who left town at the onset of the pandemic are beginning to return. While Fran Lebowitz and other curmudgeons have cheered on the exodus of the rich, whether or not they return has big implications for the city’s budget and thus vital public services.

According to Douglas Elliman’s December rental report, rents for the biggest and most expensive apartments in Manhattan rose by double-digit percentages compared to the previous month. Rents on smaller apartments and in lower price tiers remained flat or declined slightly, remaining about 20 percent lower than a year ago. This pattern appears to be driven by demand, which is stronger at the high end and weaker below, with discounts of 20 percent compared to a year ago.

The good news keeps coming:

Manhattan’s vacancy rate dropped for the first time since the pandemic began, falling from 6.14 percent in November to 5.52 percent (it’s typically between 2 and 3 percent), which is as blunt a signal as you can get that people are returning to the city. The number of new December leases signed in Manhattan was up 36 percent compared to November and a whopping 93.6 percent from a year ago. The basic principles of supply and demand are at work here too; at some point, rents fall so much the deals are just too good to pass up, particularly in desirable Manhattan.

That’s one side of the story. It does not consider the high crime rate and the low vaccination rate. It's nearly impossible to get an appointment to get vaccinated in New York City these days. And the story barely gives any weight to the grossly incompetent city government or to the fact that Gov. Cuomo now wants to hike state tax rates. And of course there's the high crime rate.

Zero Hedge has another take, mostly emphasizing the city’s failure to vaccinate the population. Given this failure, major financial service firms are offering to help out the inept de Blasio administration.

Anyway, this article is more pessimistic than New York Magazine:

Over the last 12 months of the Covid pandemic, the city has been brutalized by small business shutdowns, financial firms moving south, increasing homicides and the general ineptitude of Mayor Bill de Blasio.  As we have noted here on Zero Hedge, the result has been barren streets and plunging rents. 

Now, financial firms - historically not known for helping anyone but themselves - are reaching out and doing what they can to help distribute the Covid-19 vaccine. They are aiming to show the industry it is safe for employees to come back to Manhattan, Bloomberg notes, before there is "little reason left for them to do so". 

Perhaps there are a slew of new residential leases, but people are still working from home. The gyms are back open, but they are still mostly empty. And tax revenue is evaporating.

As of now, it looks as though working from home is going to continue for at least the first half of 2021 for many firms. "As of Jan. 13, the New York area had an office occupancy rate of about 13%," Bloomberg notes. It was the second lowest figure, behind only San Francisco, among 10 major U.S. cities. Rents have plunged, as we noted, and retail real estate is flooding the market. Commercial and residential property deals in the city were down 46% last year compared to 2019. This resulted in a $1.6 billion loss in tax revenue for the city.

This story has a different take on residential leases:

Workers, meanwhile, are in the midst of giving up on expensive apartment leases and are, instead, moving to the suburbs or cheaper areas of the city. 

Ruth Colp-Haber, CEO of real estate services firm Wharton Property Advisors said: “The office market is the crux of the whole New York City economy. Until office workers come back to the market, restaurants, retail will not revive. Same with mass transit.”

So, financial service firms are offering to help. It sounds familiar. As soon as Joe Biden became president Amazon decided that it could help out with vaccine distribution. The notion that these companies would await the arrival of Biden to pitch in with distribution is very strange indeed:

Firms are offering up their distribution networks, including their retail branches and other real estate they own in the city, to try and help. Wall Street leaders seem to have genuine (and warranted) concern about whether or not New York's economy could simply collapse if it continues down the path it's on. 

JPMorgan CEO Jamie Dimon - also likely tired of not having an intern bring him coffee every morning - said last week that “hopefully by September” things will be back to normal. He concluded: “You do see people want to go back to work once they feel safe. A vaccine will be a big part of that."