The 'Death of New York City’ is Dead
On March 3, 2020, New York City got the better of me.
Let me explain.
I moved to the city in 2011, so maybe after nine years I got too cocky. Much like investing, the minute you think you have this place figured out is the minute the city proves you wrong.
I didn’t plan on living in NYC forever. After I got married in 2019, my wife and I had “the talk” about our long-term plans (translation: starting a family). We agreed we didn’t want to raise our children in New York City and would move to the suburbs at some point in the future when we felt “ready.” We decided to stay in the city for a few more years and then reassess from there.
Most days pre-COVID, I worked from a small WeWork space near Grand Central I shared with a buddy. Because I knew my wife and I might leave the city at some point, I had timed it so my WeWork lease would end at the same time as my apartment lease. Once we decided to stay in the city, I re-upped both our apartment lease and the WeWork lease. Being a value investor with reasonable professional stability and a long-term plan, I figured it made sense to take advantage of the discounts that come with long-term leases. Committing to a year with WeWork means you can get about 20% off the month-to-month price, and in general an apartment manager will give you a free month if you opt for a two-year lease instead of one.
That’s how I ended up signing a 27-month apartment lease and a 12-month office lease about two weeks before the pandemic shut down NYC.
For the past year, both leases have been hopelessly underwater. Literally the only day my friend and I stepped foot in our office after signing our lease in March 2020 was to move out at the end of March 2021. And my wife and I watched as our apartment building rapidly emptied out last summer and the landlord desperately offered huge discounts to try to fill the dozens of vacant units. Throughout the city, we saw tons of apartment units that were a lot nicer and a good deal larger than ours going for effective rents about 20% below what we were paying, despite the leases being much shorter than ours. It was incredibly frustrating being locked into a useless lease (in the case of WeWork) or a way above-market lease (in the case of our apartment). And, even ignoring how underwater we were on our leases, it was downright deflating to be paying Manhattan prices to live in a tiny apartment when all of the great reasons to live in the city — the nightlife, the great food, the networking, so many others — were pretty much off limits.
I know there’s been tons of debate about “the death of NYC” over the past year. I never thought the city was “dead,” but I did think it would take multiple years for it to even approach what it was pre-COVID. A city is basically a big network effect. Talented people want to live and work in big cities because other talented people live and work in the city. COVID demolished that network effect, and with tons of professionals growing accustomed to working from home and thousands of businesses having gone bust, I thought it would be a long grind for NYC to re-establish those network effects.
But everything I’m seeing says NYC is back in a big way. Let me give you three “anecdata” examples of NYC’s rebirth, supported by actual data.
First, the city is crackling with new energy. It’s noticeably busier now than it has been since March 2020. During the scariest time of the pandemic, my wife and I could casually stroll up and down Fifth Avenue — in the middle of the street. A car might pass us every 10 or 15 minutes. In a city where there was always competition for tables at the best restaurants and price wars over tickets to the best shows and sporting events, the big question had become whether you could do anything given pandemic restrictions. That’s all changed in the past month or so, as more city dwellers have gotten vaccinated, COVID numbers have come down, and restrictions have eased. Residents, cooped up for so long, have responded in a big way. Restaurants are absolutely packed every night. Bars are booked solid. I’ve tried calling several about a birthday party next month, and every single one of them is already reserved.
Some data to back up my observations: Open Table, the online restaurant-reservation app, provides city-level booking data city-level booking data for NYC and London. Below, I’ve posted a screenshot of the data for May (so far) versus early April/late March (May on top; late March below). The difference is notable even at a glance. Late March only cracked the “70% of 2019 reservations” level once, while May is breaking through consistently, has hit greater than 80% multiple times, and breached the 90% level for the first time on Saturday (May 22).
Second, let’s talk apartments. Again, it’s anecdata, but I have friends who are real estate agents in NYC and they tell me that in the past month or two the phone hasn’t stopped ringing. From a personal perspective, there’s been a noticeable increase in move-ins in my building. Dozens of empty units have leased seemingly overnight, and we’re seeing multiple apartments filling up every day. Landlord concessions are way, way down. A few months ago, our building was offering multiple months free on a year-long lease. Today, it’s back to one month for a 12-month lease, similar to the pre-pandemic offer.
Some data to back up my anecdote: Manhattan Residential Sales in March Soared to Highest Level in 14 years. Sales are obviously different than rentals; this article notes “Manhattan’s Apartment-Vacancy Rate is Stubbornly High,” buried within the story are these gems: “Manhattan renters signed 82% more new leases in April than during the previous months” and “brokers and apartment owners say they are seeing signs of a turn around.” Again, the market won’t be back to full health overnight, but we’re way past the bottom and I would guess we’re multiple months further along in the rebound than all but the most optimistic forecaster would have projected just six months ago.
Finally, let’s talk office space. I tweeted this out last week: after letting my cursed March 2020 office lease lapse in March, this month my friend and I decided to look for a new space to work. I figured the market would be a renter’s paradise — tons of vacancies, landlords tripping over themselves to give us concessions, fantastic pricing, royal treatment, the works. I couldn’t have been more wrong. The buildings we looked at were filling up fast and the concessions were more typical of what we’d seen pre-pandemic (discounts for long-term leases) than what I expected (huge concessions just to get people in the door). Eventually, my friend and I settled on the WeWork near Grand Central. Our tour made clear that it was filling up fast. While there were some vacancies, most vacancies clearly had a lease signed and were getting prepped for move-ins. Our tour guide told us the office we were looking at would be snapped up quickly if we didn’t take it. Sure, the guy was a salesman, so take it with a grain of salt, but my gut just based on the activity we were seeing in the office was that he was telling the truth. We toured on a Friday afternoon and the guy was putting zero pressure on us to sign a lease. My experience is that he would have been much more engaged and would probably have applied the hard sell if he were worried about vacancies.
Some data to back up my anecdote: Go look at what any of the coworking spaces are saying; for example, here’s WeWork saying demand “is higher than it was prior to the pandemic.” Obviously, WeWork is referring to demand for global coworking, and my personal anecdata relates to an extraordinarily small segment of the market (two-person shared office space close to Grand Central), and the majority of the office market remains giant leases signed by huge multinationals. Even so, if you check out the quotes from the largest NYC office players (SLG and VNO), it’s pretty clear they’re thrilled with the pace demand is returning to NYC. Yes, SLG / VNO / WeWork are talking their book a little, so just like with my WeWork salesman you might take what they’re saying with a little skepticism, but I think the overall trend points to the same place as my anecdata.
SLG and VNO both have incredible assets, are trading well below replacement cost, and have materially underperformed both the market and reasonable comps over the past few years, even after their epic post-vaccine run-up the past few months. I would guess both are too cheap and investors in them will do well over time, though I don’t have a position in either. I’ve previously written up IWG (which owns Regus, WeWork’s biggest competitor), and I think they’re too cheap and I wouldn’t be surprised to buy them again in the future (I don’t currently have a position there either!). WeWork could be interesting as an investment as well; they’re going public through a SPAC (BOWX), and if you believe they can come close to their projections they are almost certainly too cheap (Tidefall had a good article on them this morning!).
But I didn’t write this for any investing specific reasons.
I wrote it because I talk to lots of investors, and plenty of them still mention some form of “death of NYC” or at least the risk of NYC shrinking massively in the near future. They cite some combination of COVID, huge budget issues, and a burdensome tax rate. Until a few months ago, I shared some of those concerns.
But if you live in the city or take a close look at the data, the opposite is true. NYC is roaring back. Any narrative about the “death of NYC” is dead.