A range of reports indicates that the Downtown real estate market has imploded in the wake of the recession brought on by the pandemic coronavirus. The Downtown Alliance’s “2020 Lower Manhattan Real Estate Year in Review” documents that office leasing fell by almost 70 percent from 2019 levels, to deeper troughs than those that followed the 2008/2009 financial crisis, while local office vacancies spiked to 20-year highs.
At the same time, the number of employees reporting to local offices fell by almost 90 percent as of April, then rebounded during the summer, before plateauing at around 23 percent of 2019 levels for the second half of the year.
Perhaps the most radical undoing, however, was on the residential front. “According to our research, an estimated 40 percent of the local population left amid the pandemic,” the Alliance notes, while noting that data is unavailable to indicate how much of that migration was temporary, and how many people have left permanently. This is especially noteworthy in that Lower Manhattan’s metamorphosis from a business district into a residential enclave was the signature transformation that marked the years following the terrorist attacks of September 11, 2001. For tenants, this has translated into an opportunity, with median rents falling below $3,300 (18 percent off their 2019 levels), dipping to lows last seen in 2011.
Condominium and cooperative apartment owners resisted downward pressure on prices, if they could, by refusing to sell at all—with the number of units turning over down by 42 percent from 2019 and 75 percent from 2015. For those who had to sell, properties closed at distressed prices, with the median cost for owner-occupied dwellings falling to $1.6 million in the third quarter of 2020, down 21 percent from the third quarter.
The broader picture for residential development is also sobering: The Alliance notes that three major projects are now stalled: 161 Maiden Lane (57 floors, with 80 apartments), 45 Park Place (43 floors, with 50 apartments), and 125 Greenwich Street (88 floors, with 273 apartments).
Additionally, the Alliance report notes, more than 160 retail businesses (or roughly one out of eight storefronts) have permanently closed their doors.
“By the numbers, the short-term economic impact of COVID-19 is deep and troubling,” says Downtown Alliance president Jessica Lappin. “We are doing what we can at the Alliance to help our struggling businesses keep the lights on and look towards a better day. This past year, we focused on awarding grants, promoting our storefronts, helping businesses move online and transform their physical spaces to meet new COVID regulations. While it’s still too early to say exactly what the lasting effect will be on Lower Manhattan, there are reasons for hope on the horizon. We’ve seen this neighborhood overcome obstacles time and time again.”
Two additional studies—by the online real estate database company, StreetEasy—quantified the decline in local prices, and the limited upside this has translated into for renters seeking affordability. The first of these notes that the median asking rent for all of Lower Manhattan has declined to $3,080 (a drop of 23 percent, compared to 2019), while the median asking price for owner-occupied units has fallen to $1.85 million (a drop of 9.4 percent, relative to 2019).
But the second analysis from StreetEasy tracked the growth in inventory of affordable units across multiple Lower Manhattan neighborhoods, with “affordability” defined as rents equivalent to between 30 percent and 48.8 percent of gross salary (ranging from studios to three-bedroom units), based on an annual income of $55,973.
By this metric, even with recent declines in asking rents, there was (as of mid-February) one affordable apartment available in Battery Park City, eight in the Financial District, 33 in the Civic Center neighborhood, and three in Tribeca.
Anecdotal indications also portend further trouble ahead. The upscale Equinox gym at 14 Wall Street is being sued for $1.7 million in back rent by its landlord. And as the Lower Manhattan hospitality market has melted down, developer Leonard Stern has decided to hand the keys to a pair of Downtown hotels—the Roxy and the Soho Grand—over to lenders, rather than continue making payments on a $100-million mortgage. In spite of this, the Downtown Alliance reports, more than 1,900 hotel rooms (spread across a dozen hotels) are still in the development pipeline.
Similarly, as the residential market faces serious (and apparently long-term) headwinds, more than new 3,000 apartments in 16 buildings are currently planned or under construction, according to the Alliance’s analysis.
Matthew Fenton
