There is no question that major metros across the country such as New York City, Boston and San Francisco have been among the hardest hit by the economic fallout from the 2020 global health crisis. Many local economies continue to face near term challenges due to business operating restrictions, shifts to remote working and changes in behavior. At the same time, there are some green shoots emerging that signal progress in the recovery.
Top global markets such as New York City remain eerily quiet with fewer people going about their normal day-to-day routines of going to work, dining out and enjoying the city’s entertainment. Yet many experts agree that, while the city may be down, it is by no means out. It has a history of weathering crises, such as 9-11 and the financial fallout of the 2008 Great Financial Crisis, and coming back stronger than ever. One of the most positive signs is that some big name companies are doubling down on their commitment to New York City office locations.
Facebook made headlines in August when it was reported that the company had agreed to lease the entire James A. Farley building in Midtown Manhattan in a deal that spans 730,000 square feet. That new commitment brings Facebook’s office space in New York City to more than 2.2 million square feet. Although many of Facebook’s employees are working remotely at the moment, the major lease suggests that the company believes that the city will remain an important operational hub for the company over the longer term.
New York Gov. Andrew Cuomo said in a statement that the Facebook deal marked “a significant moment in New York’s road to build back better and stronger” and demonstrates the city’s resilience. He also described the private-public partnership between Facebook and real estate developer Vornado Realty Trust as an important step in fortifying New York as an international center of innovation. Gov. Cuomo further added that “Vornado’s and Facebook’s investment in New York and commitment to further putting down roots here – even in the midst of a global pandemic – is a signal to the world that our brightest days are still ahead and we are open for business.”
Amazon also is expanding its presence with its purchase and major renovation of the former Lord & Taylor flagship store on Manhattan’s Fifth Avenue. The company plans to renovate the 630,000-square-foot building with office space ready for an estimated 2,000 workers that will begin moving into the space in 2023. That is a big move considering it comes on the heels of the firm’s announcement late last year that it would lease 350,000 square feet in a Tenth Avenue building near the Hudson Yards development.
Prior to Covid-19, the West Side of Manhattan, including the Hudson Yards development, was emerging as a tech hub anchored by Apple, Amazon, Facebook and Google. Combined, these tech giants already employ thousands of workers in New York City, and the New York Times reported earlier this year that the number could grow to nearly 20,000 by 2022. As evidenced by the recent Facebook and Amazon deals, tech firms remain keenly focused on that area of the city. Hudson Yards also is attracting more than just tech. London-based Barclays has said it is considering moving its U.S. headquarters from its current Seventh Avenue location to a new 500,000-square-foot space at Hudson Yards.
Companies are very likely taking advantage of what, at least for now, is a favorable renter’s market in cities that have been negatively impacted by the coronavirus. At the same time, their willingness to sign long-term lease agreements shows a strong commitment to bring employees back to urban offices in the future. For example, Amazon plans to add 3,500 corporate jobs and 900,000 square feet of office space across hubs in New York, Phoenix, San Diego, Denver, Detroit and Dallas.
In another positive sign, commercial real estate lending in Manhattan surged in September. The top 10 loans alone totaled $3.35 billion, which is the largest monthly total of the year. One of the largest loans was a $600 million construction loan for SL Green Realty’s ongoing redevelopment of the 410 Tenth Avenue, an Amazon-anchored office building located near Hudson Yards.
Despite the lingering uncertainty surrounding the path of the virus and release of a vaccine, these examples are all signs of underlying resiliency for urban centers and for commercial real estate going forward. The severe shock to the economy will inevitably result in some winners and losers in commercial real estate properties. For investors, the current environment reinforces the importance of looking at commercial real estate as a long-term investment. It also highlights the importance of working with high quality sponsors and projects that have the strength to weather down market cycles.