Manhattan Downshift, Yes or No?.......Let us Know
So someone has finally come out and said it. Business in New York City has slowed down. According to an article in this week's Crain's, Is there a cheaper bottle?, "across the city restaurants and hotels are noticing a significant falloff in what is traditionally a major cash cow: corporate parties and banquets."
Maybe three months ago my partner tells me, "when I take the subway home at night after working late, there's nobody on it, people aren't going out like they used to". He stops me on the street in front of Grand Central as we are walking to lunch last month and says "I used to work around the corner from here, and you could barely get down the block this time of day, there were so many people on the street....take a look around". "You're right," I say, "it's dead" (relatively). I launch into a story (something I'm infamous for...and although they are usually way too long, they often have a point): "So a buddy of mine calls me from San Francisco just after the tech bubble collapsed and tells me, I just drove back from seeing a company in the (Silicon) Valley and there was no traffic in either direction...business is dead." At the time I laughed and said "that dosn't mean anything"......but it sure did.
A couple of weeks ago I hear through the grapevine that a well-trafficked New York eatery, known for its power lunches, that happens to have a diverse clientele representing New York's major industries - Wall Street, media, real estate and supporting professional services like law and accounting - had seen a sharp slowdown in traffic. I stopped by and inquired...So how's business? The answer..."Don't tell anyone else, but it's slow." I contemplated this admission, which only made sense, and thought about trying to gather information for an Urban Digs piece. But let's face it, who would go on the record saying business was rolling over.....unless it was already so bad that everyone knew....sort of like asking brokers about a real estate slowdown or the President about a recession. I shouldn't have let it stop me....mea culpa. But I had trouble finding much corroborating evidence in the media. There was the hotel manager for an unnamed four star brand quoted by the blog HoweStreet.com saying ""business is down across all of our hotels in Manhattan. When the finance industry isn't doing so well, we aren't doing so well either." There was a quote by a manager at Delmonico's "You definitely see a little decline probably in the lunch crowds because I think the companies have cut down on their expenses." Offsetting the slowdown is the obvious surge of tourist money making its way into the coffers of New York businesses.
It's pretty clear, however, that corporations are cutting back on parties and banquets and trying to rein in hotel expenses, and this is impacting lodging and restaurants in the Big Apple. The Financial Times notes that Duetsche bank execs are being told to wash up at the airport frequent flyer lounge after an all-night flight instead of getting a hotel room to use to clean up before a morning meeting.
At the lower end of the economic spectrum, the strains of the slower economy are already being seen. The New York Daily News notes today that people in New York City receiving money from Uncle Sam's stimulus package expect to use it to pay existing bills.
I suspect that even the wealthy, sophisticated and good looking Urban Digs readership....LOL.... may be going out less, springing on fashion items and accessories less and maybe even driving your car/SUV less or generally keeping a lid on expenses. You may also be noticing that there are fewer people frequenting your local watering holes and eateries......although they can't be saving that much grabbing a slice of pizza instead. Anyway, we want to know. Tell us if you perceive that business in New York has slowed, whether it's your business, business at establishments you frequent or just how much money you are spending or plan to spend. Inquiring minds want to know!
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Comments (23)
This might be slightly off topic, but I can't help but notice all of those empty 1st floor retail space. My comfort zone is between 3rd Ave. and Chelsea, 30 st and Union Sq. But it seems that rent has gone up so much, that a Staples had to move out! I think they really over shot the rates and its the worst time to find new tennants. When will this show up in residential?
Posted by Nobi | April 30, 2008 10:01 AM
Nobi,
Thanks for the input. Around the country retailers are closing stores or slashing expansion plans as a result of weak consumer spending. In areas like Manhattan where, as you point out, rents were ramping up in a big way, it takes even less of a slowdown in consumer spending to make a location un-economic. I would classify your observation of a lot of empty space as potential anecdotal evidence of a slowdown. I'm going to pay more attention to empty space now that you have brought it to my attention.
Posted by jeff | April 30, 2008 10:19 AM
well, I certainly dont go out as much as I used to, but here in the UES, lounges and restaurants seemed packed nightly (exception of its a nasty rainy day or such)...I do see stores leaving, and talk to owners of stores who complain about rent hikes (we lost Divine Bar in midtown, on 51st between 2nd & 3rd because rent was going to be hiked too much), but in general, it seems business on consumer level is still strong here.
With that said, there also are a rising # of open comm rental spaces as I walk around these hoods! It seems empty places are either asking too much, or new demand is very light.
Posted by Noah | April 30, 2008 10:39 AM
I live in the 70's on the UES & have also noticed what seems like an unusual amount of empty retail space in the area. Some storefronts have been empty for awhile & some have closed very recently (Gristede's at 1st & 72, & an ice cream place on 2nd & 74, come to mind as recent closures).
Posted by Louis | April 30, 2008 10:42 AM
The problem with anecdotal evidence is that it is just that, anecdotal. People don't tend to notice trends until there is a change of 30% in either direction. For example, I reverse commute to NJ and pass the incoming GWB traffic every day. lately is seems "light" more often than it did, meaning that the slow traffic leading to the tolls is much shorter (like 50-75%!) but that doesn't mean that volumes are down hugely, only enough to make a difference.
That said, I do think we are slowing down, and I think it permeates everyones thinking. Things they once did without thinking they now think about. But it is exactly at the "unnoticeable" margins that the changes happen, and that is why people measure in small percentages.
Nobi - I see the same thing on the UWS. some blocks are 50% empty, probably as a bunch of tenants who had the same lease expiration all got high increases at the same time. The odd part is how long the owners are willing to let such locations sit empty. Even if you have to consider that your next tenant will have a 10 year lease into the next upturn in the economy, does that warrant several years of no income?? The old The Wiz location on 97 and B'way has been vacant since the chain closed in '03 and is only now being opened as a Walgreen's. 5 years of no income!
Posted by AvnerUWS | April 30, 2008 10:43 AM
The city is starting to see a slow down. My breakfast place just raised their prices on everything. UWS restaurants are not as packed as they used to be. We are seeing townhouses in the fringe areas standing unsold for over a year and lowering their prices. Look at 590 west 152 for example. I believe this sort of thing will continue well into 2009.
Posted by Anon | April 30, 2008 11:10 AM
I have to say that is very brave of you and Noah to be so frankly speaking about a continuing fall in the NY housing market.
Most real estate agents I have heard speak are deathly afraid of spooking their current and potential clients. They seem to have a belief that as long as they keep talking up the real estate market their clients won't notice the factual economic changes around them.
Posted by Rob | April 30, 2008 11:48 AM
Rob - Its the motivation for this site! To tell it like it is, real time, and without bias!
Talking BS simply insults the buyer's or seller's intelligence, in my opinion!
Thanks
Posted by Noah | April 30, 2008 11:54 AM
Interesting article. I agree, New York might be starting to slow down a little bit economically.
Amanda <3
Posted by Orange County Reverse | April 30, 2008 11:55 AM
Your points about retail are interesting. You could also look at the sharp decline in the value of Manhattan office real estate. For example, SL Green Realty is a trust that invests exclusively in medium-tier Manhattan office space. During the last 12 months, its publicly traded share price declined from $140 on April 4, 2007 to $94 today, which is a 33% decline. One of the hedge funds that I am familiar with made a killing shorting this REIT.
Is it fair to assume that the value of Manhattan residential real estate is immune to valuations of other Manhattan real estate? I don't think so.
Posted by chris | April 30, 2008 11:57 AM
BTW, Anna Maria Pizzareia & restaurant is GONE! I just wrote about this place in the Pizza Inflation article!
The guy said, rent & flour costs are killing him, but damn! I really hope they are just moving.
Posted by Noah | April 30, 2008 12:00 PM
Correction: SL Green Realty's value was $140/share on April 30, 2007 not April 4 as stated above. Sorry about the typo !
Posted by chris | April 30, 2008 12:04 PM
A lot more people have asked me how business is, a lot more than normal. I reply that it's not as good as the past. But I can tell from that worried look in their eyes that it isn't so good for them either, and they are asking around to make sure they aren't the only ones. Maybe this gives them comfort.
Yes, prices of goods and meals have gone up. You can tell when you order delivery, and the food ends up being more than you estimated. You look at the new menu they always give you, and compare it to the old one you ordered from, and you can see the difference. Look at Burritoville as an example.
But I think it's more than just increased retail rents. It's also increased food and energy costs.
I was at Brooks Brothers at 53rd and Fifth the other day. I overheard the manager say that sales have gone up slightly, single digits, over last year. They had been estimating 20+% increases. He said if it hadn't been for the foreigners, sales would be down. Walk around the store and you'll hear lots of accents.
When will the rest of NYC finally take notice of what the few of us here already are noticing? When the foreigners stop coming. And when will that happen? Ask Noah.
Posted by Bee Dub | April 30, 2008 12:28 PM
Foreigners won't stop coming until the dollar drops or their economies hurt significantly (not just a slowdown). Or when oil makes air travel so expensive that fewer travel, or travel as far.
Posted by AvnerUWS | April 30, 2008 12:49 PM
Yea I agree..foreigners are here for a while! Although I am getting very interested in the future of the US dollar! Combo of our fed pausing and intl' cb's easing at same time, plus the enormous short interest in our currency, could give the greenback strength.
Watch out for commodities priced in dollars!
Posted by Noah | April 30, 2008 12:55 PM
Bee Dub,
I am going to take a look at the question of when foreigners will stop coming to NYC and when they will stop investing in NYC real estate in a future post. Reagrding travel to NYC, suffice it to say that I would expect travel from the important UK market to slow soon as their economy is slip sliding away and they have both real estate and consumer debt problems.
Posted by jeff | April 30, 2008 1:02 PM
Glad to have helped!
Not to be a pain in the Hoo-Ha for Noah, but considering all of these indicators and discussions, and if you're a:
- current renter,
- sophisticated and good looking UrbanDigs reader,
- understand your own cash flow situation and how much an investment can loose you money,
wouldn't it be prudent not to buy in this current market?
Personally I've written off 2008 and most of 2009 for the US economy including NYC. How could a sophisticated residential buyer not consider market timing even if they plan to stay longer than 4 yrs?
Posted by Nobi | April 30, 2008 1:50 PM
I agree with Nobi. You can never time it perfectly, but you can still time it. Right now all indications are for a decline, and an accelerating decline. Don't buy Manhattan (or other) real estate and short REITS is my advice.
Posted by chris | April 30, 2008 2:15 PM
I agree with Nobi. You can never time it perfectly, but you can still time it. Right now all indications are for a decline, and an accelerating decline. Don't buy Manhattan (or other) real estate and short REITS is my advice.
Posted by chris | April 30, 2008 2:16 PM
I've noticed alot of small to medium retail spaces empty (Murray Hill, UES, Midtown), and a few more surprising closures (B&N, Starbucks, etc.). I recall noticing the same thing in the late '80's. If it weren't for the banks seemingly endless need for corner spaces, just think what the vacancy rate would be.
And how long before banks, at least other than Chase, decide that money on every corner does NOT really matter. Citibank, BOA at least must be in a position to vacate many locations as soon as they can.
Posted by Brenda | April 30, 2008 5:06 PM
At my daugther's top-notch private school, fundraising is down approximately 25% this year.
Posted by Private School Parent | May 1, 2008 11:03 AM
a little corner store / deli on W 71st and B'way just put up their sign that they will be closing after 21 years. did not mention rent increase but typically that is the main reason (at least on the UWS). retail is a huge bubble in Manhattan. to be honest I was totally psyched about the new Chipotle on 72nd & B'way but it's a little sad to see the classic mom and pops go bye bye. I miss Vinnie's Pizza which was next to the P&G on W 73rd. Manhattan unfortunately has gone from one extreme of unliveable (crime and smut) to the other extreme of unliveable (minimal affordability). perhaps that's just the nature of highly dense urban living....
Posted by Fred | May 1, 2008 11:58 AM
I am and everyone I know are making more money then we ever have.
What is that saying - " a recession is when your neighbor loses his job, a depression is when you lose your job"
With my crew it isnt even a recession.
Posted by pete | May 2, 2008 1:52 PM