In a normal September, world leaders would fly to New York to grab a piece of the spotlight at the opening of the United Nations General Assembly, pumping up to $12 million into the city’s hotels alone.
That didn’t happen in 2020. Vijay Dandapani, head of the Hotel Association of New York, isn’t counting on an in-person session this year either, even with COVID-19 vaccinations getting rolled out.
“The U.N. is so cautious,” he said.
After Labor Day, the 16 Manhattan and Brooklyn office buildings owned by Rudin Management, which have averaged only 15% occupancy since the city’s economy began reopening, will finally see a significant influx of workers, predicts co-chairman Bill Rudin.
In the meantime, he’s trying to help his tenants survive. Among them: Mark Strausman, who finally opened his restaurant, Mark’s Off Madison, in November, just before indoor dining was shut down again.
“We want him to be there,” Rudin said. “We told him not to worry about the rent and we will figure it out.”
Even with vaccines bringing new hope, the city’s pandemic-slammed economy will struggle at least into the fall, economists and business leaders believe.
‘Heightened Need and Misery’
The most up-to-date forecast, released last week by the Independent Budget Office, sees the city mired in a deep recession, adding only 184,000 jobs this year, about 30% of those lost in 2020. The unemployment rate is expected to average 14% for the year, slightly higher than current numbers.
Even more pessimistic, the IBO does not believe the city will regain all the jobs lost last year even by the end of 2024.
The optimists see improvement arriving toward the end of the year, with the impending Biden presidency and Democratic control of the Senate spelling good news for New York on everything from plugging budgets to keep buses and subways moving.
Two sectors — tech and finance — are thriving. And some economists, notably New York Times columnist Paul Krugman, believe Americans who kept their jobs have saved so much money during the pandemic that they will go on a spending spree that will result in a faster-than-expected rebound.
“It is a transition year,” Rudin said.
Still, James Parrott, an economist at the New School, echoed the IBO’s bleaker outlook.
“The picture of a very gradual, drawn-out jobs recovery rings true, unfortunately,” he said. “We are looking at a prolonged period of high unemployment, and widespread heightened economic need and misery.”
Hunger Gets Worse
City Harvest statistics show the impact on New Yorkers. The amount of goods delivered to the food rescue organization’s 400 pantries surged 83% last year compared with 2019, and the number of people served at community distribution sites tripled. This year, the nonprofit expects to deliver 118 million pounds of food by June.
“The pandemic continues to hit New York families incredibly hard, with millions struggling to put meals on their tables,” said City Harvest CEO Jilly Stephens. “As winter sets in and we navigate the pandemic’s devastating economic impact, food insecurity in New York City is only getting worse.”
Meanwhile, the eviction moratorium for most tenants has been effectively extended to May 1, but the long-term fate of renters — and landlords of various sizes — remains unclear. So do the prospects for the state and city budgets beyond next year.
The city’s biggest economic problems start with a tourism sector waylaid by travel restrictions and office districts with almost no office workers.
Then there’s what is expected to be permanent damage to the city’s retail sector, with stores closing, people working from home making more purchases online, and the uncertain return of foot traffic to business and tourism districts.
Hotel Business in Peril
The tourism depression has not only cost thousands of jobs: It has so undermined hotel finances that a wave of permanent closures seems inevitable.
STR, which tracks the hospitality industry, projects the city’s hotels will rebound to an occupancy rate of 67% this year from last when on average it filled only half the available rooms. But that is still 20 percentage points below the occupancy rate the industry routinely achieved in the pre-pandemic years.
The average hotel rate will be only $150 a night this year, according to data from the hotel association. A room rate of $200 is required to cover just a hotel’s labor costs, according to a report from the consulting firm Lodging Advisors, a level that is unlikely until 2024.
The result could be a wave of permanent closures. Just last week, the Novotel in Times Square was shuttered for good, following a similar decision by the owners of the once-storied Roosevelt Hotel near Grand Central Terminal.
“Even if tourists return, the convention business won’t and business travel won’t pick up, said Dandapani. “The hotels will have to cut rates to compete for the tourists who do return.”
Leisure and hospitality employment have been devastated. Jobs fell by 304,000 in the two months following the shutdown in early March, with only 115,000 of them regained, according to the state Department of Labor.
The coming employment report for December, meanwhile, is likely to show a decline in jobs because of the end of indoor dining, spurred by a rise in COVID-19 cases.
Strausman had begun construction on Mark’s Off Madison in the Rudin building at 41 Madison Avenue before the pandemic hit last March.
While he’s shut his fine-dining operation, he’s kept his bakery there open while offering takeout. His staff of 20 is only a modest fraction of the 75 people he would employ at full operation, and he had to let several workers go when the state nixed indoor dining in the city.
“None of this makes economic sense, but you have to have a job,” Strausman said.
Mixed Signals on Office Space
Rudin and other landlords are frustrated that despite their extensive efforts to make their buildings as coronavirus-resistant as possible, some companies have been unwilling to ask their workers to return to their offices.
One of the most worrisome figures to landlords is companies subleasing space — a sign tenants may not expect all their workers to return to the office, post-pandemic. Almost 19 million square feet of such space is being marketed, the highest since 9/11 and representing 28% of all space for lease, according to the real estate firm Savills.
Rudin believes that while there may be changes in the way people work, the city’s more than 400 million square feet of office space eventually will be fully occupied. He points to 20 leases signed last year for more than 100,000 square feet, led by tech companies such as Facebook, Tik Tok and Apple.
He noted significant activity in three buildings where he is marketing large blocks of space, including 3 Times Square, 80 Pine St. downtown and Dock 72 in Brooklyn.
Sharply lower rents should also get companies to act, said real estate executive David Goldstein, who predicted a 25% decline in effective rent factoring in concessions such as free rent and money for renovations.
“Certain buildings will fare better — newer ones with modern post-Covid features,” Goldstein, vice chair of Savills, a major property advisor. “Faring worse will be the run of the mill buildings that really haven’t changed except for a new lobby.”
Whether owners can survive such a decline isn’t known.
Landlords like the Rudins, with space occupied by major corporations, are in the best shape. The Rudins continue to collect a little more than 90% of the rent they are owed by office tenants. Even retail rents are coming in at a 65% clip, Rudin said.
Tech Success Spurs Hope
Two industries have been barely scratched by the pandemic recession — tech and finance.
The city’s information sector, composed primarily of people working in tech, was the only sector to see an increase in wages in 2020, the IBO noted.
Peloton, the stationary bike company, went from being an unprofitable startup to the most in-demand home exercise outfit with revenue soaring and a stock price that jumped from $20 in March to $150 a share on Friday. The online insurance company Lemonade is trading more than 350% above its July 1 initial offering price.
“The companies that have doubled down on New York since pandemic are tech companies such as Amazon, Facebook and Tik Tok, which have signed new leases,” said Julie Samuels, executive director of the trade group Tech:NYC. “And Google continues to hire.”
Google employs about 12,000 people at its Chelsea complex, with plans to add 8,000 more.
Samuels is also convinced tech companies will keep expanding in the city and that employees will flock to New York and work primarily from the office, even in an era when they seem most equipped for remote jobs.
“The pool of talent keeps tech companies tethered to New York,” she said. “Tech workers have wanted to be in bold dynamic cities, they still do and they still will.”
Bonus Prize for the City
Wall Street has also prospered during the pandemic, with the stock market surging. New stock offerings have pumped up profits while low interest rates have kept borrowing costs at rock bottom.
The IBO expects financial sector profits for 2020 to reach $47 billion, the second-highest ever. While no final numbers on bonuses to be paid next month are available, profits usually lead to big payouts.
Wall Street accounts for more than 20% of all state tax collections, one reason state revenues will be $4 billion higher than expected when the budget was adopted last year, according to the state comptroller.
Mayor Bill de Blasio, in the last year of his final term, believes the future is brighter.
“This month we will deliver a balanced, fiscally responsible, budget,” said Laura Feyer, a de Blasio spokesperson. “And with the Senate wins in Georgia, the federal government can now deliver a robust stimulus that will be a pillar of New York’s recovery.”
Others believe the uncertainties are too great to be so confident.
As George Sweeting, IBO’s deputy director, said when the forecast came out last week:
“The really big issue is what are the long-term changes for the city in terms of population, demand for residential and commercial real estate and whether the MTA will be rebuilt so it can function as the circulation system for the city and the region.”