Broker confidence in New York City slumped for a third straight quarter but remained in positive territory, according to the latest survey from the Real Estate Board of New York (REBNY).
But the decline was largely driven by brokers’ outlook on the residential market: the Current Confidence Index for the sector went from 50.63 to 31.41 in Q1, whereas the Commercial Current Confidence Index was essentially flat.
Unlike the last several reports, however, COVID-19 wasn’t solely to blame for declining confidence. Residential brokers suggest that the residential market may moderate thanks to rising interest and mortgage rates; the latter metric hit 5% for thirty-year mortgages in March, a high watermark since fall 2018.
On the commercial side, brokers expressed concern over a delayed return to office as well as quality of life issues, in spite of major employers recently committing to and executing return to office plans in the first quarter. Office occupancy in New York City was at 37% as of mid-April, according to Kastle Systems, up from 22% in late January. However, that figure still trails the average occupancy among the 10 largest metro areas monitored by Kastle.
Six-month expectations were even more grim, declining by 17% for commercial brokers and 20% among residential pros, but the overall outlook was still better than early in the pandemic, when REBNY’s Commercial and Residential indices were -33.74 and -64.32, respectively.
Some factors suggest a positive trend for New York, including a narrowing gap between subway and bus ridership and ridership on the LIRR and Metro North and a doubling in gross ticket sales for Broadway shows between the last week of January to mid-April. Restaurant occupancy has improved from 70% below pre-pandemic levels in January to approximately 40% below re-pandemic levels now.
Brokers say the critical issues that need to be addressed to sustain progress this year include resolving quality of life issues like crime, transit safety, and sanitation management, local incentives supporting business, and containing inflation.
“The main challenges facing the brokerage community have thankfully shifted away from unprecedented public health concerns,” REBNY Director of Marketa Data and Policy Keith DeCoster said in a statement. “Economic momentum and broker confidence should stay in positive territory, particularly if public policymakers continue to prioritize quality of life issues and empower owners and businesses to invest further in New York City.”
A “more substantial and sustained” return to office will also be necessary to buoy commercial broker spirits, according to the survey–but despite that, demand for Class A and trophy assets with updated amenities remains high.
“While there are significant headwinds facing the NYC office market, including an historically high availability rate, and many workers still reluctant to return to the office, there is undeniably very strong demand from occupiers for space in the best office buildings in premium locations,” said Bill Montana of Savills.