New York on the Rocks

I for one have been skeptical about New York City’s revival. I have willingly presented the arguments for the predicted great comeback, but as long as midtown Manhattan office space remains largely empty, I reasoned, the city is very far from returning to its former glory-- such as it was. The same is true of the retail stores that line the streets and avenues. Or, should I say, that used to line the city's streets and avenues.

Now we have two articles casting doubt on the New York Renaissance. The first, from Zero Hedge, tells about what has happened to retail outlets:

Signs of an economic revival in Manhattan have been shattered by the sad reality that businesses aren't returning to the borough. Vacancies are piling up as rents plunge as the whole recovery narrative falls apart.

According to the Real Estate Board of New York's spring 2021 retail market report, rents declined across Manhattan's prime-time retail shops, with one neighborhood in Lower Manhattan, called SoHo, down 37%. 

"Signs of a nascent recovery are tempered by the reality that traffic in most retail corridors is far from approaching pre-pandemic levels," the report said.

In April, while everyone championed the grand reopening of the city, we showed how rents in the borough continued to slide. As long as work-at-home continues to dominate, the recovery in Manhattan will remain subdued. 

Anyone who walks around the city will notice the empty storefronts:

The collapse of asking rents for vacant retail spaces lining the sidewalks along the borough was documented this week by YouTuber "Louis Rossmann" who has 1.56 million subscribers. 

In two separate lengthy videos, Rossmann, in detail, walks around Midtown Manhattan and shows viewers dozens and dozens of vacant storefronts. 

In one of the videos titled "NYC's reopening, but businesses aren't coming back," he said you "can walk eight steps" down the street and find a vacant retail shop. 

"This is clearly not sustainable - at some point, this [NYC commercial real estate market] will crash - and what people will tell you is that it's impossible - there's no way it could crash," Rossmann said. He noted that some of these places were vacant even before COVID. 

Zero Hedge continues, forecasting a decline in property values. Obviously, empty storefronts do not pay rent to the owners of the office buildings that contain them. This is going to produce problems for those who hold the mortgages on the buildings that house these outlets:

He said, "there is a thing with commercial mortgage-backed securities where the building has a certain value and is based on the rent they can get - and the value of the building doesn't get officially marked down until the rent is lowered." 

As for commercial real estate, office buildings and the like, we can now judge its condition by looking at the food cart indicator. You see, people who work in the large midtown office towers often pick up lunch from the food carts that are lined up in the streets around the buildings. 

Thus, fewer workers, more empty offices impacts the food truck industry directly. The story comes from DNYUZ:

For Mr. Karagiorgos and thousands of other food trucks and vendors in New York City, their shot at making any meaningful profits — or, in some cases, even making it worth their while to haul their carts into the city — depends on when office buildings fill up with workers and tourists return in significant numbers.

Food trucks and cart vendors are part of the city’s fabric, fast and inexpensive options for hungry office workers, retail employees, students and out-of-town visitors looking for anything from chicken and rice to coffee and an egg sandwich to lobster rolls and even steak meals. But for now, these vendors are primarily watching and waiting.

Some of the operators are trying to pick up catering business on the side, but, they are still hurting:

While those types of events are helping Mr. Karagriorgos’s bottom line, they’re not enough to make up for the loss of his normal Midtown lunch crowd. He said that he was back to about 40 percent of his pre-Covid business, but that the cost of chicken and other food had skyrocketed in recent months. Mondays and Fridays, when even fewer people are going to the office, are his worst days.

“We raised our prices,” he said. “We’re almost at $10 a gyro right now, but what are you going to do?”

Ah, yes. The insidious tax imposed by inflation, the result of printing too much money. I recognize that many serious liberals insist that inflation is not a problem and that it will soon fade away. The jury is still out on this, but for the food cart industry, the double whammy of empty offices and higher prices is making for a very bad time indeed.