NYC Tourism is Up But Can’t Compete with Slow Office Recovery

New York City’s office recovery is presenting an obstacle to a fuller CRE rebound in the metropolis, Placer.ai is reporting.

While in August, NYC tourism domestic visits were up by 2.4% compared to August 2019 and city-wide retail visits were down only 5.3% in the same period, monthly office visits to an index of over 40 office towers there were still short by more than half, or 51%, in July against the July of 2019.

Placer.ai cautioned that although the year-over-two-year visit gap had been consistently narrowing, it grew again in August.

The firm blamed the slow office recovery on work from home, rising COVID cases and the summer’s standard obvious office impact when many New York City office workers typically are away.

The Placer.ai outlook was a bit dourer than a recent study from CBRE

CBRE reported earlier this month Manhattan office leasing activity surged compared with the second quarter of 2021, as the market registered its strongest performance since the onset of the pandemic.

Third-quarter Manhattan leasing totaled 5.88 million sq. ft., up 70% from Q2 2021. However, the Q3 total was still 5% below the five-year quarterly average of 6.16 million sq. ft.

For the year-to-date, Manhattan leasing has outpaced the same period in 2020 by 13%.

“While still in the early stages, New York City is showing clear signs of a recovery,” said Nicole LaRusso, senior director of research and analysis for CBRE New York Tri-State, in prepared remarks. “In fact, new leases and expansions improved for the third consecutive quarter. The 5.88 million sq. ft. of total leasing in Manhattan was the best quarter since Q1 2020.”

Avison Young noted in its Q3 New York City Market Report post-Labor Day return-to-work efforts remain below pre-COVID levels even as other areas of the city become more active, impeding office leasing demand. Some tenants have capitalized on these market conditions, inking long-term commitments at high-quality office properties, causing leasing activity to improve on Q1 and Q2 2021 levels.

Closed deals totaled 7.0 msf in Q3 2021, up from a quarterly average of 5.6 msf in Q1 and Q2 2021. Large tenants have traded up when committing to relocations at new properties since April 2020, reinforcing the flight-to-quality trend and the discrepancy in market fundamentals between Trophy properties and other market segments.

In September, Fitch Ratings predicted the recovery of New York City office space from the Covid-19 pandemic will be subdued, below average.

The poor recovery could see a cumulative double-digit net cash flow decline from pre-pandemic 2019 levels, Fitch warns in a report.

The study sees mid-single digit net cumulative demand growth in the next upcycle versus mid-teens, with limited rent growth and with rated NYC office REITs likely to not see positive same-store NOI growth until 2022.