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New York City retail has hit its nadir and will recover, but may never reclaim prior peak levels, Vornado’s chairman and CEO said.
NYC retail has hit bottom: Roth
Recovery will take years and sector may never return to peak, Vornado CEO admitsNew York City retail has bottomed out and will recover, but may never get back to where it was, according to Vornado’s Steven Roth.
The market is building a base from which to climb out of its worst crisis in recent memory, Vornado’s chairman and CEO said Tuesday on the company’s third-quarter earnings call.
“This is not going to be a rapid, V-shaped rebound,” Roth said. “It’s going to take years for this market to recover, and it may never recover to the peak of 5 or 7 years ago.”
In the meantime, Vornado remains a buyer of New York City retail real estate.
“We will buy the highest quality at very attractive prices, [but] there hasn’t been that kind of availability or offering yet,” Roth said. In fact, Vornado recently sold some retail space at a loss.
Executives on the call spoke of renewed business activity in the city’s retail corridors. Tenants that were “in a shell” for more than a year are back looking for space, even in tourist-dependent submarkets such as Times Square, president and CFO Michael Franco said. International tourism around the holidays will be “another shot in the arm for the city,” he offered.
“Now the transaction machine is working again,” Franco said, later adding, “We don’t expect it to snap back to 60 million [tourists per year] immediately. But the trendline from the city opening, and the attendance at sporting events and Broadway shows and other things is quite good and quite indicative of what we think is going to happen.”
Commercial rent increases are likely on the distant horizon, however.
“Activity has to happen before you start getting rental movement, and it’s going to take, I think, a decent amount of activity before that happens,” Franco said.
Vornado reported third-quarter adjusted funds from operations, plus assumed conversions, of $136.2 million, or 71 cents per share, up from $116.7 million, or 61 cents per share, from a year ago.
The company leased 111,000 square feet of New York retail space during the quarter at an average initial rent of $109.61 per square foot annually, bringing this year’s to 176,000 square feet at an average initial rent of $142.70.
Vornado sold five underperforming retail assets earlier this year, including two in Soho and three on the Upper East Side. The company expects to recognize a gain of $1.5 million from the Soho sales and a $7.9 million non-cash impairment loss on the Upper East Side sales.