New York’s commercial real-estate market, a prime mover of the city’s economy, has managed to stay aloft since the Wall Street crash despite missing a wing. Repeal of onerous Dodd-Frank regulations can restore the lift.
But will it come in time?
Wall Street’s largest banks have historically driven the office market. But since 2010, they’ve sat on the sidelines for several reasons. Chief among them: Dodd-Frank’s byzantine regulations meant to “reform” Wall Street that former President Barack Obama signed into law in 2010.
President Trump wants to “do a number” on Dodd-Frank — at least on its harshest provisions that deter major banks from hiring and expanding.
It can’t come too soon for Manhattan’s office market — which, despite its prosaic sound, is the city’s economic MVP. Like the Patriots minus Tom Brady early last season, you can do without your MVP for only so long before reality catches up — as when New England got whipped 16-0 by lowly Buffalo in game four.
It might already be happening. Real-estate firm JLL reported that Manhattan leasing in 2016 dropped to its lowest level in seven years. Vacancy rose from 9.6 percent in 2015 to 10.4 percent. Controller Scott Stringer raised the alarm that office leasing fell in five of the last six quarters.
What buoyed the market for a time was growth in the so-called TAMI sector — technology, advertising, media and information. But, ominously, space-taking by such companies fell 15 percent from 2015, JLL reports. Companies like Time Warner, Conde Nast and Group M have anchored new towers. But not many more are known to be searching for floors at Hudson Yards, the World Trade Center and One Vanderbilt — where most newly-minted space is available or soon will be.
While financial firms still account for 30 percent of our office space, the momentum’s in the opposite direction. In 2006, they accounted for 42 percent of all new leases larger than 10,000 square feet in Manhattan, according to Cushman & Wakefield tristate-area president John Santora. But, in 2016, the figure was just 22 percent.
Trump undercuts his case against Dodd-Frank when he grumbles that it cramps his friends’ ability to borrow. But his less than pitch-perfect argument shouldn’t blind anyone to what Dodd-Frank’s repeal or softening could mean to New York City.
Job growth, more than any other factor, is what drives companies to expand their office space. But, “Dodd-Frank has caused a drag on all bank earnings,” says CBRE vice-chairman Robert Alexander. “The regulations have put a damper on banks using their own capital for risk. There’s no need for them to hire and expand if they can’t grow their businesses.”
Goldman Sachs, long the thousand-pound gorilla of space-eaters, has added no floors in the past few years. JP Morgan Chase and Citibank are shrinking by shedding some of their old floors and “consolidating” at other locations — the reverse of longstanding practice.
Why’s there still no Two World Trade Center? In large part because the tower was designed in the mid-’00’s for large banks with giant trading floors. It left developer Larry Silverstein for several years chasing tenants that didn’t exist (it’s since been redesigned with media and creative firms in mind).
Why does all this matter so much?
Commercial real-estate taxes contribute the lion’s share of city real-estate taxes, which comprise 60 percent of all tax revenue. Commercial property-related taxes brought in $20.4 billion last year, according to the Real Estate Board of New York — enough to pay for all the city’s teachers, cops, firefighters and other municipal workers.
Yet while the city claims 540,000 more jobs today than it did in mid-2008, Cushman’s Santora notes, there are 6,200 fewer financial jobs. The reality is even worse. Many positions for profit-driving traders were replaced by “compliance” jobs — i.e., the in-house army needed to interpret Dodd-Frank’s 1,000 pages and to ensure that a firm doesn’t violate the 22,000 pages of new regulations the act spawned.
Trump can restore the juice — if he doesn’t get sidetracked by arguments over Ivanka’s clothing line. “If there’s an easing of regulations, we’ll see growth by financial institutions, especially in New York,” Santora said. “And that will be good for New York.”