Midtown Manhattan and the way forward
Crippled retail and office properties optimistic as people return
WRITTEN BY Emily Nonko
December 10, 2021
In February of 2020, just a few weeks before New York City would go on lockdown, the Grand Central Partnership hosted Grand Gourmet – The Flavor of Midtown, an event showcasing Midtown’s burgeoning restaurant scene at Cipriani 42nd Street. Soon after, those restaurant spaces – alongside the rest of the retail and office spaces across the neighborhood – would be empty. “Who would have thought that this world-central business district would, in many ways, be abandoned?” said Fred Cerullo, President and Chief Executive of Grand Central Partnership.
The emptying of Midtown has lasted into present-day: according to a special report released by the Real Estate Board of New York, nearly 30 percent of Midtown storefronts sat vacant in the office-dependent retail corridors of Grand Central and Midtown East as of Summer 2021.
Though retail vacancy remains high, experts see some signs of promise: hotel and new development openings, employees returning to work and an uptick in foot traffic. They hope that these factors are enough for Midtown retail’s vacancy rate to return closer to normal in the new year– it had previously been at 10 percent pre-Covid. “We see a very promising future,” Cerullo said, “But there’s lots of work to do.”
“Retail remains a very challenging asset class,” Dan Hilpert, founder and managing director of Equicap, pointed out. “Most banks require retail tenants to be in possession and [be] paying rent in order to use the retail cash flow to underwrite and size the loan. We have had success financing vacant retail properties, but it requires some structure.”
In Midtown, retail already faced challenges pre-COVID. “We saw rents exponentially increase, really at the end of the financial crisis, between 2010 and 2016,” said Richard Hodos, CRBE’s vice chairman with the New York Tri-State Region Retail Services Team. “Then everything paused, the bottom actually fell out, and the pandemic hit. So, we’re like in the 6th or 7th year of a bad recession of retail in New York City.”
Both Hodos and Rob Byrnes, President of the East Midtown Partnership, point to the pandemic departures of larger national chains like Victoria’s Secret. “When I see huge national chains shutter their outlets here, it tells me they had over-expanded pre-pandemic,” said Byrnes. “These are the stores that are largely closing – the mom and pops are hanging in there because they have a more loyal customer base.”
Hodos believes there’s opportunity to split larger flagship retail into smaller storefronts with lower rents. REBNY also offered policy recommendations with its report: mandating widespread vaccination to confront the virus, encouraging employers to bring workers back to the office with public health protections in place, upholding policies that reduce barriers to entry for retailers, and avoiding regulations and initiatives that discourage retailers from setting up locations in core office districts.
Grand Central Partnership spearheaded increased outdoor dining, as well as social media promotion of local businesses, events and more to lure people back to Midtown. It seems to be working: 6.3 million people passed through the district this November, 182 percent more than in January 2020. (That’s still 37 percent lower than the end of 2019, according to Cerullo.) Roughly 10 percent of businesses that occupied space in the district, but were not open, have reopened this year.
All 18 hotels in the district have fully reopened. Furthermore, high-profile development One Vanderbilt opened, with JPMorgan Chase’s new HQ at 270 Park moving forward with construction. East Side Access is expected to open next year, bringing Long Island Rail Road commuters into Grand Central.
“There [are] all these things together that are helping bring more people to the district,” Cerullo said, “And more people in the district is a message to the retailers that there are customers here.”