Industries across the City face an uncertain future. Getting “back to work” in the post-COVID-19 landscape presents a host of challenges as business leaders try to balance commerce needs of the public with State & City requirements to keep workers and customers safe.
In this, my 5th video blog, I’m going to look at (6) sectors within the City that typically provide its economic stimulus. These “vital sign” sectors include Office, Retail, Restaurants, Live Events, Construction and Transit.
What does the immediate future of each sector hold? Real estate experts I’ve consulted with suggest the following:
Commercial Office
Since the start of the pandemic, office leasing is down 50% — and is expected to plunge further as a result of the rise in the “home office” trend.
Landlords are instituting new policies and protocols for both public & private spaces — things like temperature scans at building entrances, in addition to touchless entry, security points, and limits on elevator capacity.
Likewise, tenants are expected to implement new measures to create a low-risk environment for employees and staff.
Meanwhile, hotel occupancy is down 80% and may take years to recover.
Retail
Retail has also been devastated by the pandemic and, unfortunately, will continue to suffer. The industry is being forced to implement social-distancing measures inside of stores, including limiting the number of shoppers at once and requiring customers and staff to wear PPE attire.
If tenants can’t renegotiate their leases, or negotiate deferred rent, I expect to see an increase in the rise of vacancies and/or empty storefronts, sadly, because most landlords would prefer to let their commercial space go vacant than rent a property for below market value. One strategy to help struggling retailers is to pay landlords a percentage of revenue earned.
Ultimately it is expected that many small retailers will not survive, even with the assistance of the PPP.
Restaurants
Perhaps more than any other sector, the food & beverage industry is facing an existential crisis. Factors include decreased capacity due to social distancing, decreased foot traffic, increasing kitchen safety, and additional requirements for licenses & certifications. As part of the City’s reopening plan, street or curbside dining has been a relative success, but Gov. Cuomo and Mayor DeBlasio have been diligently monitoring & enforcing occupancy levels. As a result, profits for the small business owner are expected to be extremely low, if any.
Live Events
The last industry to experience any type of reopening will be live events. This sector includes Broadway shows, museums, art galleries, and professional sports, all of which expect huge financial losses. Public performances and social distancing are simply too hard to achieve with poor crowd control.
As we are currently witnessing, the entire business of professional sports is being altered. Let the NBA and its bubble scenario serve as an example of how professional sports can continue to thrive.
International travel also plays a huge role in the live performance sphere, as tourism is a largely known source of revenue for the City.
Construction
The construction industry is deemed essential. Therefore, most infrastructure, utility, healthcare, and roof & façade work has continued throughout the pandemic. Hotel construction, however, is a bust for the foreseeable future, although office medical development looks to remain strong.
Funding for new construction has been proceeding with great caution, as Lenders now only want to finance “strong Sponsors”. Developers looking for financing must have a proven track record, prove their projected rents, and have a balance sheet strong enough to cover interest payments for a minimum of 36 months.
Transit
Even with its new roll-out of regular cleanings, the transportation sector will continue to be hindered unless the virus is mitigated. NYC’s economy relies heavily on packed buses and trains, now only at 30% capacity, as most riders and MTA workers are simply too nervous to travel through crowded spaces.
So when will NYC rebound/bounce back?
A vaccine is a key factor in that question. That being said, who wants to be injected with Version 1 serum from Russia?
Optimists highlight that New York is a “special place”. The talent and influencers are in NYC, therefore many believe it will thrive once again, like it did after 9/11, the financial crisis of 2008, and Hurricane Sandy. New Yorkers are some of the most resilient people in the world.
Pessimists believed phased re-openings would be doomed to fail and perhaps they were right. As numbers continue to spike nationwide and the school system looks to re-open with a hybrid learning model, only time will tell the full economic and social impacts caused by the pandemic.
Unfortunately, my crystal ball is out getting polished — however, I will say, it is not unrealistic to think that a paradigm shift may be coming soon at the Federal, State, and Local levels.
Thank you and I look forward to hearing from my colleagues who are brokers, economists, and small business owners about their remaining 2020 forecasts. Feel free to reach me via cell, email or social media. Take care now!
DeVon Prioleau
PRI-O-LEAU Development Group LLC
244 Fifth Avenue, Suite 2607
New York, NY 10001
Office: (212) 561-6707
devon@prioleaudevgroup.com
