The State of Commercial Real Estate in Manhattan (In Photos)
Over the past few weeks I’ve noticed an increase in commercial real estate vacancies around Manhattan, especially ground level retail. Tonight on my walk, I took some photos around Flatiron, NoMad, and Union Square. A few of these places were vacant before the pandemic began, such as the Belgian beer spot, but many are recent casualties.
According to data from CBRE, Manhattan’s retail vacancy rate reached 12.1% in Q1 2020, up from 8.3% at the same time last year1. That was already heading the wrong way before this year. The shutdown just shoved it forward.
I have a short position on REM with the expectation that real estate (especially commercial real estate) is in for a big price correction. Carl Icahn has also talked about this, noting that the commercial mortgage market is on the brink of collapse.
Commercial real estate usually lags residential on price corrections. Residential can reprice fast; commercial leases are longer, so the damage stays half-hidden until it doesn’t.
The pandemic sped up a decline that was already underway. Traditional retail has been getting squeezed by e-commerce for years. U.S. e-commerce grew by 14.9% in 2019 alone2, and a lot of brick-and-mortar retailers were already barely making it.
These were all taken on my walk tonight through some of Manhattan’s most expensive retail corridors:
Some of these spaces will get repurposed. Maybe fulfillment, maybe experiential stuff, maybe healthcare. Others will just sit there until landlords cut rents enough to fill them.
Right now Manhattan looks like a place in between versions, with landlords still pretending the old one is coming back.