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Soon, you might be able to buy an entire Dolce & Gabbana store for less than one of its patterned dresses.
That’s a
slight exaggeration, but here’s the point: Commercial real estate,
particularly of the high-end variety, is getting crushed during the
pandemic. Rents along NYC’s ritzy Madison Avenue are down 17% in Q3, according to brokerage Cushman & Wakefield.
What’s going on: Covid-19
brutalized urban retail corridors. First, cities emptied out when
companies started working from home. At the same time, people started
shopping online by the cartload (which puts more demand on warehouses,
not actual store locations). Finally, the tourists so many of these
luxury retailers depend on were forced to take staycations.
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An extreme example: Swiss retailer Akris just bought three properties along Madison Ave. at about 80% below peak sales prices in 2014 ($1,340/square foot average vs. $7,589), writes the WSJ.
Now for an M. Night Shyamalan twist
They might appear in the dumps, but commercial rents are still too high
right now, and that’s crippling NYC and other cities’ abilities to
rebound economically, argues Columbia University law professor Tim Wu in
a NYT op-ed.
Wu writes
that rents don’t reflect current market conditions. Landlords are
incentivized to keep rents artificially high for a few reasons,
including...
- Some landlords can afford to be patient and hold out for when demand returns.
- Other landlords simply can’t lower rents based on agreements with lenders.
- Lower rents can lead to depressed property values, the last thing a landlord wants.
Inflated
rents are bad for the economy because when businesses can’t afford to
set up shop, high vacancy rates can suck the vitality out of a
neighborhood. In Times Square in Q3, 29% of space was available.
Looking ahead...Wu
proposes a few fixes, such as establishing minimum-rent terms and
tweaking zoning laws, and says cities can use this crisis as an
opportunity to come back better than ever.
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