One of the few locations that seemed to be resilient in the face of the housing crash a year ago was Manhattan. Sure, there had been some layoffs, but the mood was to stay the course and everything would be okay. An article from Bloomberg today reports that things aren't going so well there anymore. Storefront vacancies are climbing and rents dwindling. It seems that the city that never sleeps is getting drowsy.
Here's some detail from the piece:
Manhattan shopping strips from the Upper East Side to SoHo are flooded with empty storefronts. The borough's second-quarter vacancy rate rose to 12.4 percent and now stands at the highest since 2001 as rising unemployment and the recession curb spending, according to data compiled by Faith Hope Consolo, chairman of the retail leasing and sales division at Manhattan- based Prudential Douglas Elliman Real Estate.
"The consumer just stopped shopping," Consolo said.
Rents may fall as much as 23 percent by the fourth quarter from a year earlier and may continue dropping through 2010 given the pace of unemployment and consumer demand, according to Sam Chandan, chief economist at research firm Real Estate Econometrics in New York.
The problem should be pretty easy to dissect. New York City was the financial capital of the world. It may still be, but the financial world has taken a hit the likes of which it hasn't seen since the Great Depression. Thousands have been laid off in financial services. Many of those jobs are not likely to come back any time soon. Some never will. Most of those who still have jobs have taken major hits in their compensation, whether government or recession induced.
Some law firms are even going out of business. Many of those that remain have been laying people off. Deferrals of job offers are common among recent law school graduates.
Those are two of New York City's major profit centers, and both are in pain. It's no wonder that the trickle down effect has been felt by retailers and landlords. And that doesn't even take into account the broader recession, which is causing everyone to hold onto their wallets a little tighter.
But lower compensation levels and the recession aren't the only things driving Manhattan's problems. Facing dim job prospects, some are leaving New York City altogether.
I also left New York earlier this year, not so much because of job prospects, but because I wanted a change. When my dry cleaner heard I was leaving he was disappointed -- he said many of his customers were leaving Manhattan. Although I couldn't find any data for 2009 documenting New York City's population change, this and other anecdotal evidence I've observed suggests that people are leaving the city to find better opportunities elsewhere.
And that makes sense. Much of Manhattan's population is made up of talented, ambitious people who move there to thrive in high-powered careers. When career prospects there aren't so good, they don't have friends or family that might compel them to stick around. They can go back to their hometown, or try some other city where they might have better luck.
Will Manhattan prevail? Can it thrive the way it did before the financial crisis? Perhaps.
But for that to happen, the rest of the world will have to again become comfortable doing business in New York. London has been challenging New York's dominance for some time. Meanwhile, other business Meccas like Dubai and Shanghai continue to grow and challenge its dominance. I hope New York can again one day dominate the world of business, but getting back there won't be an easy journey.