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COVID Pandemic-Urban Buildings Ghosted Some Tenants May Not Return

Bloomberg Businessweek December 21, 2020 pp44-49 “Midtown misses you”. “New York’s business district is half empty. Every other big city has a similar problem. Developer Aby Rosen is still planning a bright post-pandemic future” By Devin Leonard.

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Data presented in a figure

At this point in the pandemic “Change in office card swipes” have increase slightly from the trough but are still very low San Jose -89%, NYC -86%, LA -72%, Austin TX -66% and Dallas the best metro -62% versus pre-pandemic levels. The national all locales rate is -27%.

YOY change in rent per square foot has dipped in the highest price properties $70-$75/sq.ft. -6.6% in SF, -5.4% in Midtown Manhattan and -4.3% in Manhattan. In the $40-$55 range Chicago is off -1.2% but LA is up +6.8%. In the lowest price category $25-$40 prices are up +0.6% in Philadelphia, +0.7% in Houston, +1.4% in DFW and +5.3% in Austin TX.

Summary of the Article

This piece focuses mostly on NYC but there are similarities elsewhere.

Usually according to Aby Rosen (RFR Holding) says “This neighborhood [Midtown NYC] is…busy as hell.” That would be normally but not now. The Chrysler Building (RFR Holding) is essentially empty. Tenants reportedly are continuing to pay rent but some won't be renewing their leases. For one large tenant even a 50% rent reduction won't keep them from “decamp[ing] to the suburbs.” The decision-makers “don’t want to get on a train and come into Midtown" going forward.

Nearly a year into the pandemic and Midtown has “the feel of a Twilight Zone set.” Broadway is “dark…no concerts, no live sporting events. Hotels were failing. Many stores permanently closed.” There are no office workers and only “17% of the New York region’s employees had returned to the office…”. RXR buildings are experiencing only 10% of normal traffic. Executives until this recent wave of COVID encouraged staff to come back to working in office. Now companies worry that employees will litigate if they push too hard to “lure employers back…”.

San Francisco has fared worse with only 13% returning to work. Landlords now hope workers will return to office as vaccinations are more broadly deployed. One additional fallout of the pandemic is that workers will want more social distancing which is counter to reducing leasehold costs by concentrating staff in a smaller footprint. For landlords this puts downward pressure on price as each “square foot is worth less." As a result of the shift to WFH “New York tenants dumped more than 2.5 million square feet of sublease space…a number unseen since the Great Recession.”

There are “larger issues” in NYC including an “unemployment rate of 13%..., looming evictions, rising crime” with “forecasts of widespread small-business failure” and “A projected $9 billion revenue shortfall.” Rosen using a combination of incentives, including free stay-overs at RFR Hotels, has his employees back in office contrasting with only “12% of [other of the] occupants are back.” Making matters worse, “Police [have] disappeared from the street and Mayor de Blasio is essentially a lame duck ending his second and final term.” There’s hope a new mayor can start a turnaround. Other of Rosen’s holdings like three NY hotels and six restaurants might not open until after Spring.

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