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Condo-Co-op Helpline: New York Real Estate and Construction Trends 2021-2022

The View of New York from Weehawken (Photo by Uvi D on Unsplash)

New York is all about real estate: buying, selling, leasing, due diligence, financing, repurposing and rebuilding. Among the loss of the state and local tax (SALT) deduction, the impacts of COVID-19 and remote access on all four aspects of the real estate market — retail, office-commercial, industrial and residential — the markets have been fluctuating. However, trends appear to be upward, for the two latter markets, and neutral to negative for retail and office-commercial. Interest rates and inflation are also impacting the real estate markets.

The current low interest rates are favorable for real estate and development as there is money available at a relatively low cost. There is a caveat — one technique used to manage inflation in prior cycles was to raise interest rates. This is going to be a political football. The Biden administration wants both low interest rates and low inflation. Watch for the Federal Reserve to increase the overnight fund rate a quarter of a point in either the second or third quarter of 2022. The Biden administration may also be slow to remove the Trump import duties on construction materials.

Due to the changes in retail shopping habits spurred by the supply chain issues, e-commerce continues to grow, while retail stores continue to close; to wit, the decision by CVS to close 300 stores per year for the next three years. There are some hopeful signs for retail, particularly in cannabis, where in-person transactions will remain the norm for the foreseeable future. However, the overall outlook for in-person retail is mixed at best.

The weakness in retail is countered by the need for distribution centers of all types. Warehouse space, particularly near population centers, urban and suburban, are in demand. Retail sites with small showroom areas and large storage areas are also in demand as distribution, pick-up and return centers. Warehouse space will remain at a premium.

In the same way that warehouse space is in demand to address the changing and reducing demand for retail outlet space, larger residences are desirable, while the demand for office space is weak. Employers are looking at hoteling offices, benching staff and generally making remote work, at least in part, a meaningful option. Many employers are allowing employees to come to the office only two to three days a week, and many employees are learning to share offices in shifts — e.g., this is my office Monday and Tuesday, but your office Wednesday and Thursday.

But for those working from home, a quiet place to work with appropriate furniture and equipment, as well as reasonable internet access, is essential. For many, this means a house in the suburbs or a larger apartment. The likely return of a more generous SALT deduction will only propel this trend forward. Housing prices and home rental costs have crept back to the levels last seen in mid-2019.

Some New York activity has moved from Manhattan and Brooklyn to Queens, Westchester, Long Island and New Jersey as the property size has become more important and the commute time less so with people commuting only two to three days per week. Larger apartments and homes will continue the upward pricing movement, while smaller apartments may remain stagnant.

Construction activity is starting to recover from the weakness in early 2021. The passage of the bipartisan infrastructure bill has helped. Also helping locally is the rezoning of 82 blocks in the Gowanus neighborhood of Brooklyn. Construction spending generally returns six dollars for every dollar invested. With this ratio of return on spending and the infusion of the infrastructure money, together with the infrastructure money included in the Biden administration’s American Rescue Plan of 2021, as well as the city’s climate resiliency program, the New York City economy should strengthen in 2022 with construction, both heavy and building, leading the way.

Key to this recovery is addressing the supply chain issues that are burdening the construction industry and tackling the labor shortage. The latter may result in another round of wage increases for blue-collar workers, which may stimulate more inflation. The net impact of the foregoing is that the environment for investing in New York real estate remains favorable.

This column presents a general discussion. This column does not provide legal advice. Please consult your attorney for specific legal advice.

Carol A. Sigmond
Greenspoon Marder LLP
590 Madison Avenue, Suite 1800
New York, NY 10022
(212) 524-5074