Commercial landlords in New York City have long charged notoriously high rents. After all, there is only one New York, and the space in which to do business there is a valuable asset, not to be leased out cheaply.

These rents, then, have been a common gripe of the small businesspeople trying to make ends meet in the City. 

During the worst of the pandemic last year, though, landlords in New York City became worried that their tenants would simply close up, and they’d be left as the owners of empty and shuttered buildings. The market became more friendly to the commercial tenants who, as Eric Grossman writes in MarketWatch,  have successfully negotiated “free rent, flexibility on term length, and percentage-0rent deal structures.” 

The worst of the pandemic may have passed. Many New Yorkers are vaccinated, and the city’s natives are walking around the streets as if it is the summer of 2019 again.

But it plainly isn’t the summer of 2019. International tourism in New York is almost entirely absent. Even domestic U.S. tourism is very low. The commercial districts are, as a story in The New York Times says, “awash with empty office space.” 

The result is that landlords in New York City are still on the defensive, treating as negotiable deals on terms they would have laughed at two years ago.  

The CBRE Group, named for Coldwell Banker Richard Ellis, has collected data on rents that shows variation across the city, but on the whole the deals being struck are 14% below the asking rent. 

A Different Landscape

Landlords in New York City have tried to adapt to the different landscape not just with flexibility on rents and term structures. They are also working to retain tenants with allowances for renovations (“tenant improvements” or just TI) and with new technology. The manager of a tenant business may need to communicate easily with employees who are not yet ready to resume their commute, who want to stay in the suburbs.

This is negotiable between workers and employers. The landlords will help. They will redesign spaces to facilitate Zoom calls, as well as to allow those employees who have resumed their commutes to work in a socially distant way from one another. 

Commercial landlords pay roughly 10% of the City’s taxes, so the city has every reason to hope that they can accommodate themselves. 

Rod Santomassimo, the founder and president of Massimo Group, a CRE consulting organization, writes optimistically on behalf of his landlord clients. They now, he said, have “pipelines full with less desperation-based opportunities,” they are “adding to their teams and repositioning their marketing messages for the positive opportunities that come with the brightened horizon.” 

What does this mean? Is 2019 back again for the commercial landlords? Can they go back to squeezing small businesses as firmly as they squeezed them in the pre-pandemic days?

A New Equilibrium

It is not likely that the old equilibrium will return in full force. A new one may be in the making. 

Adaptation is critical to business success. Students of the big box retail chains have a story on this subject they often tell. As Kmart expanded in the 1960s and ’70s, it ignored the impact of the interstates. On the other hand, Walmart studied and adapted to the interstate interchanges. Walmart thrived and KMart became a gag line in the movie Rain Man.

Likewise in today’s New York City: those who adapt will set the terms for the city’s future. Employees have learned that they can continue to do business without commuting into the city. Buyers have become comfortable with having all types of things delivered, so they can shop without coming into town. 

These facts will continue to exert a limiting pressure on the value of commercial rents in the City for a long time to come. 

After all, in the days of empty streets and barren offices, people adapted. Small and medium sized businesses were among those who did the adapting. The survivors of the period know that they can adapt, and this has made the impossible seem negotiable.

That is not going to go away.