Delayed Office Return Hampers Midtown Manhattan’s Retail Recovery

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The dearth of workers around New York City’s office hubs has led to a plague of vacant storefronts in Midtown.

That’s according to the Real Estate Board of New York (REBNY), which found that nearly 30 percent of storefronts were vacant around Grand Central Terminal and in Midtown East as of the summer — double ​​the two corridors’ historical rate of 10 to 15 percent.

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The vacancy rate in the two Manhattan corridors from July to September is roughly twice as high as the vacancy rates REBNY found in residential neighborhoods in the outer boroughs. Greenpoint and Prospect Heights area in Brooklyn both had a 14.6 percent rate while Astoria and Sunnyside area in Queens was at 14 percent.

“It’s clear from these findings how critical the link is between the recovery and success of the city’s once vibrant retail sector and a full, safe return of office workers,” REBNY President James Whelan said in a statement. “The health of the retail sector plays an essential role in New York City’s full economic recovery.”

But Manhattan might be inching ever closer to that recovery. In the second quarter of this year, retail leasing started to warm up as some demand returned for companies wanting to establish flagship stores in the Big Apple, according to a CBRE report. And James Famularo, president of Meridian Retail Leasing, said he’s seeing a red-hot market for deals. 

“It’s on fire,” said Famularo. “Eight or nine months ago, I was calling people begging them to just walk through space. And I was [hearing], ‘No, never call me again, [or] lose my number.’ … I literally couldn’t give away a space for free. Now things are renting for asking price [and] in some cases they’re going higher than the asking price, because there’s a bidding war.”

Famularo — who works on leases in Manhattan, Brooklyn and Queens — said Harlem and Midtown have been two areas in high demand for retail leases thanks to pent-up demand that’s built over the pandemic and lower prices for storefronts. 

But both REBNY and Famularo agree that the office market is suffering, with REBNY pinning the blame for Midtown and Grand Central’s struggling retail market on the shrunken number of office workers in the area.

Many businesses delayed plans to bring workers back to their daily commutes after the spread of the delta variant and COVID-19 cases ticked up earlier this summer. Several even pushed back their return dates to 2022.

Office occupancy has been stuck below 30 percent this year, meaning commuters aren’t spending at shops near their workplaces, REBNY found. And Midtown East and Grand Central were home to a lot of the city’s businesses before the pandemic. The two areas accounted for 9.4 percent of Manhattan’s 28,539 retail shops in 2017, and office workers made up a majority of the $6.5 billion in sales in the two corridors, according to REBNY’s report.

As a result, empty storefronts abound. REBNY said 93 of 311 Midtown East and Grand Central retail stores were unoccupied, and 132 of 631 stores on the Upper East Side were empty as well. On Madison Avenue, 82 of 289 stores were vacant, according to REBNY. Neighborhoods in Brooklyn and Queens, however, saw comparatively fewer vacancies.

REBNY pointed to increasing vaccination rates and employers sending employees back to offices as a solution to the depressed retail environment. 

“The public and private sectors need to focus on measures that continue to increase vaccination rates and safely draw office workers back to the central business districts to ensure the storefronts and retail businesses that constitute the fabric of our city experience a strong and full recovery,” Whelan said in a statement. 

Company vaccination mandates have already seen some serious success in the city. Related Companies, one of the first landlords to issue a strict vaccine mandate and the employer of about 4,000 people, let go of less than 1 percent of its staff in enforcing its new policy, which provides for “limited exemptions only for verified religious or medical reasons,” said Related spokesperson Jon Weinstein. The company as a whole reached 100 percent compliance last month, with its corporate staff hitting 100 percent as early as May.

Douglas Durst, chair of the Durst Organization, said during Commercial Observer’s leasing forum on Wednesday that his company’s “get vaxed or get axed,” mandate produced 99.7 percent compliance. 

About 58 percent of companies plan to require that all employees are vaccinated for COVID-19, with some exemptions available, and 44 percent plan to require that all office guests are vaccinated, The Partnership for New York City found in an August survey. However, 37 percent of companies reported not having a vaccination policy. 

Celia Young can be reached at cyoung@commercialobserver.com.