DT Commercial Real Estate Leases Slumping So Far In ’23
Half-a-million square footage of new commercial leases in the downtown area represents the lowest quarterly measurement since the beginning of 2021, and is significantly lower than the more mild two percent decline in Midtown.
That’s the latest word contained in The Lower Manhattan Real Estate Market Report, an assessment by the Downtown Alliance, which manages the Downtown-Lower Manhattan Business Improvement District.
Residential markers assessed in the report were more mixed, indicating that rental prices peaked in 2022 and are dropping somewhat this year. The median rent of $4,225 for downtown apartments landed not far behind the all-time high of $4,664. Nonetheless, the report clarified that “available units sat on the market an average of 22 days longer than in the previous quarter, suggesting that rents may have reached a plateau in the higher end of the market.”
The Alliance also noted that 5,700 units were being built across 18 downtown buildings. In essence, commercial real estate has taken a far more pronounced hit than residential space in downtown Manhattan this year, with a far murkier path forward.
“The commercial real estate market can generally be described as lethargic,” Andrew Breslau, the Senior Vice President of Communications and Marketing for the Alliance, told Our Town Downtown. “Anybody who speaks with confident security about what its intermediate or long-term prospects are is probably looking at a magic eight ball,” Breslau added.
He did hedge these comments with a note of wary optimism, noting the rebounds occurred in the market in the past after “huge blows” such as the 2008 recession or Superstorm Sandy. He further emphasized New York’s “increasing attractiveness as a residential destination and the maturation of it as a cultural center,” citing the upcoming opening of the Perelman Performing Arts Center in September. “There are long-term reasons not to be overly cynical,” Breslau said, “but nobody should be in the business of wearing rose-colored glasses, either.”
One of the most prominent reasons for vacant commercial space, Breslau claims, are the aftershocks of the pandemic and the resulting boom in remote work. Admitting that this is a “very complex question,” he laid out the possible scenarios moving forward, ranging from stabilization to downturn: “There could be a regularized notion of a four day in-place workweek, or there could be a period of nobody building new real estate, so that there’s increased demand for the extant square footage. Or, it could all just be in a recessionary hold.”
Breslau was less certain that the Federal Reserve raising interest rates (the Federal Open Market Committee raised the rate from five percent to five-and-a-quarter percent in its latest meeting) would have a determinative effect on commercial leases over the long term. Referring to the rate swings, he said that “they’ll relax…that’s not outside the realm of expected ebbs and flows. In the near term, it certainly has a depressive effect.”
Returning to the pandemic’s effects, however, Breslau concluded that “the larger question is the one I think all of us wrestle with to some degree in our lives, and that also impacts commercial real estate, is: what grand sociological public health experiment have we just gone through?”