Midtown Manhattan, which was in the doldrums for much of the pandemic, has finally started showing signs of life. However, this advance could be jeopardized by the rise in coronavirus cases due to the spread of the Delta variant.
Remote areas were fought during the lockdowns with soldiers carried by residents who spent money locally because many of them were holed up at home but the city's central business district was withering. Midtown, commonly defined as the area from 34th to 59th Streets, has no significant resident population, and when the office workers and tourists disappeared, there were few people left.
Hotels closed. Office buildings and shop windows lost tenants. Photos of a shockingly empty Times Square, which typically attracts nearly 360,000 people a day, wired the dire situation.
With increased pedestrian and transit traffic, Midtown has improved. Business in restaurants and shops has recovered and budding owners are exploring the ground floor space at discounted prices.
Companies that held back in search of new offices last year or that flourished during the pandemic's e-commerce boom are also popular with shopping. Some firms that may not have been able to afford Midtown in the past are finding that they can now with lower rents. Those who follow the real estate industry feel optimistic about Midtown.
"We are seeing strong signs of this initial recovery," said D. Sam Chandan, dean of New York University's Schack Institute of Real Estate.
The drive to reopen Midtown, however, could see a setback as cases of the highly transferable Delta variant rise, which could pose potential problems for New York's financial recovery as commercial landlords pay about 10 percent of the city's taxes.
Hoping to keep the reopening momentum going while protecting New Yorkers and tourists alike, Mayor Bill de Blasio ordered proof of vaccinations for certain indoor activities last week. And more and more companies with offices in New York, such as Facebook, Google, and the Walt Disney Company, have announced that their employees will need to be vaccinated before they return to work.
In the face of a third wave of the coronavirus, some companies that had called their employees back to the office after Labor Day are postponing their plans again.
The picture is further complicated by the uncertainty about hybrid work arrangements. And some believe that the area's reliance on office use should be offset by more residential use, especially because hybrid work can mean that office buildings will never be as full as they were before the pandemic and streets remained less active.
What hasn't changed is what has always made Midtown the star of the Manhattan commercial real estate fair: its central location and unmatched transport links. In addition, the buildings are usually larger, with extensive floor slabs that can accommodate tenants with a large number of employees.
Even before the pandemic, when areas further south like Flatiron and Chelsea were considered hip, Midtown continued to attract tenants, including tech companies like Facebook.
But with the success of remote working over the past year and a half, many companies have decided to reduce their real estate footprint, let leases expire, or seek subtenants.
Vacant Midtown office space hit a record 47.4 million square feet, or 19 percent of the total, in the second quarter of this year, according to brokerage firm Cushman & Wakefield. According to Savills, a real estate consultancy, the space available for sublease rose to 11.7 million square feet in early 2021.
After some tenants did an about-face, the square feet available for sublet dropped to 11.3 million in the second quarter, said Jeffrey Peck, vice chairman of Savills.
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"We represent several tenants who had brought space to market – they thought they would never come back or would not need that much," added Peck. “You've said since then, 'Don't sublet. We come back.'"
Another sign that Midtown is turning the tide is a sharp surge in potential tenants viewing available office space, realtors say. Touring tends to be slow in June and July, when lots of people go on vacation, but not this year, said Paul J. Amrich, vice chairman of CBRE, a commercial real estate firm. It saw a slight decrease in August, but attributes it more to vacation than Delta
The shopping spree is unlikely to lead to an increase in signed leases until later this year. And the completion of development projects in the next few years will increase the office stock even further. But there was already a drumbeat of lease signing announcements.
"It's a little surprising how quickly this happened," said David A. Falk, president of New York's Tristate Region at Newmark, a commercial real estate services company.
The tech industry handled much of midtown leasing in 2020, but financial services have regained their traditional position as the district's leasing leader this year, accounting for 38 percent of all new deals, according to CBRE.
And the fastest gobbling up office space is in new or radically renovated buildings that have lavish amenities and rigorous air filtration – a selling point at a time of heightened concern about airborne germs.
The prices are much higher in such class A buildings, but the vacancy rates are lower than in class B properties, which tend to be older and offer no advantages.
A Vanderbilt, a skyscraper that opened next to Grand Central Terminal in September, is 89 percent let, according to its owner, SL Green Realty. And the company has the top floor of the building on the market for $ 322 per square foot, which, if realized, will likely be the most expensive office space in town.
Building owners have put money into renovations to stay competitive, including a $ 120 million update of 1345 Avenue of the Americas by Fisher Brothers, Durst's $ 150 million renovation of 825 Third Avenue, and Brookfield's $ 400 million – 660 Fifth Avenue redevelopment. The Olayan Group is spending approximately $ 300 million to renovate the 550 Madison, AT & T's former Chippendale-topped headquarters, said Erik Horvat, the company's director of real estate for the Americas.
But interest has also increased in some Class B buildings, especially when landlords are motivated to do business.
GFP Real Estate, a family business, is busy signing tenants by offering short term leases at reduced prices, believing that it is better for a tenant to pay a lower rent than no tenant at all.
"This is the toughest I've ever worked on, I do so much business," said Jeffrey Gural, chairman and director of GFP.
The bargains attract companies that Midtown may not have been able to afford in the past.
The Center for an Urban Future, a nonprofit that tracks the city's economy, had sublet space in Lower Manhattan but is now buying by space in Midtown.
"Before the pandemic, our organization really would not have been able to lease in Midtown," said Jonathan Bowles, the executive director. "Now we have an excess of options."
There are also many options for dealers. Asking rents have fallen and landlords are dangling incentives. Some develop agreements to take a percentage of a business's revenue instead of a fixed monthly rate.
Food and beverage suppliers in particular were looking for former restaurant space that was already fitted with kitchen appliances, said Steven Soutendijk, Executive Managing Director at Cushman & Wakefield. Amid the flurry of deals, La Casa Del Mofongo signed a lease for a 15,000-square-foot space near Herald Square for a Latin American restaurant and nightclub.
Rockefeller Center, where a flagship Lego store opened in June, has successfully attracted tenants, including the Rough Trade record store.
Still, it could be two or three years before there was a complete turnaround in the retail market, said Peter Riguardi, president of the New York area at real estate agency JLL.
Some believe that in the long run, Midtown needs to diversify just as Lower Manhattan has done in the past few decades, transitioning from a purely 9-to-5 financial district to a 24/7 neighborhood.
"I wouldn't count Midtown just yet," said Mr. Bowles.
