New York City Retail Investment Forecast
Retail Properties Benefit from Returning Foot Traffic;
Mixed-Use Provides Hedge Against Uncertainty
Outer boroughs near recovery, with commercial districts well on the way. Amid questions over economic reopening, retail recovery continues across the five boroughs. Despite the emergence of COVID-19 variants, gaps between current foot traffic and pre-pandemic activity have consistently narrowed, and consumer spending will end this year over 20 percent above 2019 levels. Asking rents in the city's outer boroughs are approaching full recovery, with Queens and Staten Island reporting all-time highs for single-tenant assets in 2021. As most office workers remain on remote schedules, subdued commuter traffic leaves retail fundamentals in core Manhattan and Brooklyn submarkets further from pre-pandemic peaks. Despite this, robust leasing activity in January of this year is generating record-asking rents for office space in Midtown South, signaling tenant confidence in a large-scale return to workplaces in the near to mid-term. As large firms commit to bring employees back to Manhattan and Brooklyn, rising commuter activity will put significant positive momentum on retail asking rents in these office-heavy districts. New York's mixed-use inventory gives retail investors unique opportunities. The city's retail investment market is moving forward from its pandemic slump. Trading velocity increased in 2021's latter half, as new COVID-19 strains did little to discourage investment activity. Sales trends have been bifurcated between different asset classes. The outer boroughs saw a multi-year high in single-tenant deal flow, led by a sharp rise in transactions in Queens, where retail markets are less dependent on commuter traffic than nearby boroughs. Investors willing to deal with a tougher regulatory environment also leaned on the city's multifamily sector when looking for mixed-use properties. In Manhattan, where the largest gaps still exist between current and pre-pandemic retail fundamentals, mixed-use retail-residential options change hands with yields in the low-4 to 5 percent range, roughly 100 basis points under the current market average.