New York City is often spoken of as if it were a week from collapse or a year from becoming a new Zion. It depends on who’s talking. New York governor Kathy Hochul recently declared her intention to “not only rebuild from the pandemic, but also to unlock New York’s incredible potential.” In this vision, the trash-strewn canyons of Midtown will soon thrum once more with the clamour of the Le Pain Quotidien lunch crowd, the awed whispers of tourists in the Times Square M&M’s World, the whirrs of electric scooters carrying tech workers to their offices. But there is a desperation in claims like Hochul’s, suggesting that something isn’t right—forces still threaten to upend the fantasy of a City Ascendent in all its techno-Bloombergian finery. What if this crisis was the last one? What if New York is slouching toward the charnel house, waiting to be consigned, block by block, to ruin?
The fatalists seem to have the upper hand at the moment. The past year has seen all manner of grim forecasts of oncoming dilapidation, from headlines like “Retail Chains Abandon Manhattan: ‘It’s Unsustainable’” to a viral sad-sack blog post by the former hedge-funder and concerned ex-resident James Altucher, who claimed that the pandemic had cratered the city’s commercial real estate, which would lead to a lethal “deflationary spiral.” That this has not happened is beside the point.
There is an arresting logic to the millenarian accounts, especially when the utopian position contents itself with proferring idle technocrat dreams. Both sides recognize the severity of retail and office vacancies, which function as a barometer of the city’s “vibrancy.” There is nothing sadder to both the undertaker and the wonk than an empty storefront: one sees the hollowness of the end, the other a “sticky” roadblock. For the uninitiated, the vacancy is highly legible, serving as a readily understood, over-aestheticized tableau for the disaster porn genre. This ultra-visibility is further magnified by the blight’s persistence in even the most venerated Manhattan enclaves, like Soho and Midtown, where retail vacancy rates have hovered around an unprecedented 30 percent. At the same time, nearly 11 percent of retail leases across the city were delinquent as of November, to the tune of $7 billion, according to Newmark.
Economic watchers muttered promises of a pent-up reserve of consumption, or “revenge shopping,” which was primed to burst free after the pandemic had ended. This has not occurred. Following one significant spike in March of last year—on account of stimulus checks—national retail sales quickly mellowed and have remained largely flat, stifled by inflation and supply chain disruptions. In another domain, only about 8 percent of white-collar workers were back in their Manhattan offices full time in November—while 54 percent remained fully remote—and hotel occupancy remains significantly lower than what it was prepandemic, according to the Partnership for New York City. The prayed-for explosion of vibrancy, the dream of New York City revitalized, the “end of the pandemic,” have all failed to materialize. But even a joyous return to the streets and the office will not save New York.
Vornado Alley
Online sales have never accounted for more than 16 percent of total retail sales nationally, but there persists a narrative of online shopping devastating “brick and mortar” retail. In fact, the percentage of online sales with respect to the overall retail market have actually fallen to 13.3 percent since peaking at 15.7 percent earlier last year. But Manhattan is not just any retail market—it is the retail market, host to the world-renowned locations of Saks Fifth Avenue, FAO Schwarz, and Macy’s, which limp along even as old stalwarts like Neiman Marcus, Century 21, and Lord & Taylor have fallen. However, to blame these deaths entirely on the internet or even the pandemic is a lie. Retail is changing in character, as evidenced by the mystifying ascendance of immersive “retail experiences” like the CAMP “family experience store” in Hudson Yards and the Harry Potter store on Broadway, where shoppers can sample butterbeer and take selfies in the “Atrium of Awe.” As CBRE noted in its November 2021 Real Estate Market Outlook, these “new retail concepts” will “capitalize on opportunistic market conditions” and “absorb some of the vacancies left by failed retailers.” “Opportunistic” here is a euphemism; a more accurate word would be monopolistic. We are in the depths of an extended process of winnowing, and the bankrupting of legacy department stores is simply one overt facet. According to the St. Louis Fed, an estimated two hundred thousand businesses, many of them retail stores and restaurants, closed over the course of the pandemic. As Trepp noted in December 2020, the economic conditions of Covid-19 “led to the creation of clear retail ‘winners’ and ‘losers,’ as evidenced by the undeniable growth of the likes of Amazon and Walmart”—particularly the former, which saw its share price nearly double since late 2019, at a time when most of its local competitors found themselves underwater.
Even a joyous return to the streets and the office will not save New York.
Concomitant with the consolidation of retailers is the monopolization of retail square footage. Manhattan’s largest owner of street retail, the Real Estate Investment Trust Vornado Realty, owns 2.6 million square feet, or about sixteen hundred Starbucks’ worth, of retail space in the borough. We are not talking about a mythical mom-and-pop landlord, who might be labeled either an avaricious leech or kindly benefactor. Vornado is what David Harvey and Lata Chatterjee call a “professional landlord” who administers properties via “professional management techniques, and is very sensitive to profits, losses and the rate of return on capital.” At its scale, Vornado need not rush to fill spaces with tenants like a smaller landlord, for whom losing a month of rent on a single property may be lethal. Profitability for Vornado is a calculation considered across their entire asset pool—valued at $17.5 billion—with the effect that one empty storefront means relatively little. If the rent Vornado asks is high for most, there is almost no force that can compel it downwards. Vornado can absorb short-term losses—by either waiting for a willing (and equally massive) tenant or by selling the property to another real estate investor, who will then similarly hold it waiting for a dream client or sell it in their time. In any given space along any given street, the monopolist landlord meets the monopolist proprietor like tectonic plates along a fault line. Small landlords and retail tenants thus find themselves in a hostile environment, dominated by ur-predators who do what they do but better. The titanic scale of the players and the amount of money moving around makes human lives disappear.
This process, accelerated but by no means set in motion by the pandemic, is now fully coming to bear along the avenues of Manhattan: demand is down and unlikely to recover. There are simply fewer retailers seeking square footage than previously. Nevertheless, professional landlords like Vornado, SL Green, and Related Companies hold an effective monopoly on retail space, concentrated in the borough’s historically high-performing retail corridors, meaning they may charge whatever they deem fit to access these locations. The “cultural” standing of a “major corridor” such as Fifth Avenue, along with the promise of heavy foot traffic, works to make an astronomical price per square foot palatable. That asking rents there are down 14.2 percent since this time last year is a grim portent. It indicates a fall in demand to which landlords are responding by reducing rents that ordinarily preserve their holdings for only the wealthiest tenants. Even so, these properties remain utterly out of reach for most—a decrease of this magnitude leaves the average across the sixteen major corridors tracked by CBRE at a whopping $615 per square foot.
Thus, storefronts remain empty because supply has been artificially limited to a level that more or less matches the constrained demand. The supply of square footage in the form of buildings may be physically high, but landlords, functioning as the wardens of rentable space, prevent these from being actually used. These vacancies constitute a reserve of capital which languishes not in warehouses or stockyards, but lies dead upon the street, yet deployable at any time. This initial supply glut poses a problem that does not go away, due to the fundamental obduracy of stone and steel. A building may stand, and be rentable, for a century or longer. At the same time, more space continues to enter the market: over twelve thousand new commercial construction projects began in the city in the first half of 2021 alone. The construction industry must, of course, keep building: supply must ever be pumped into even the most oversaturated markets. The ostensible ephemerality of capital in real estate finds itself tethered to a maddeningly unpliable host in the physical stability of urban space. Landlords respond to this perennial crisis the only way they can—by artificially constricting properties on the market. But the only real solution to the problem of the empty storefront is, well, a bulldozer.
Capital City
This overt tension between proprietors (or would-be proprietors) and landlords has taken on the quality of a morality play. The former, who perceive every abandoned Pret A Manger as a phantom limb, inveigh against the latter, accusing them of “killing” New York City with vacancies. Each side has undertaken campaigns to score a decisive victory over the other, with initiative usually lying with the proprietors. The Small Business Jobs Survival Act, which would enshrine a negotiation process on lease terms, or the Commercial Rent Control bill, which would modulate rent increases on commercial properties in a way analogous to residential rent stablization, have both been floated from time to time, only to be denied by the landlord cabal known as the Real Estate Board of New York. However, this is a proxy war in more ways than one, with the pipsqueak players—the small proprietors and landlords with meager portfolios—bickering in the shadow of the titanomachic struggle among the Vornados and the Amazons. This petty fighting proceeds block by block, vacated corner by vacated corner. Purportedly battles for the “soul of the neighborhood,” undertaken to preserve “community character” or some such shit, these are ultimately waged between types of capitalists who have found themselves at loggerheads.
Vacancies constitute a reserve of capital which languishes not in warehouses or stockyards, but lies dead upon the street, yet deployable at any time.
There will be no resolution because this is not the true conflict. There is a higher power both sides answer to—the vicious pursuit of profit above all. Marx likens competition between capitalists to the squabbling of “hostile brothers,” who fight over a hoard of spoils for the greatest fraction. Yet the brothers are twins, and they fight over profits they originally stole together. This is the crucial detail. As they alternately bicker and cooperate, the fallout elsewhere is devastating.
The thought-patterns generated by this interminable war have come to define the social existence of cities, especially New York. This is not to say that all citizens and residents unconsciously serve higher masters, but that arguments made in good faith are ultimately whipped into a form where they provide ammunition to one or other faction of capital. We are all stammering in their vernacular. Do you want to preserve a neighborhood’s character? Well, if you want more shops—even local ones!—you’ll need to favor the proprietor capitalists. If you want a modicum of change, you’ll need to work with or against the landlords. Want to build new housing? Then you’re likely arguing that capitalist-developers be allowed to work unfettered to the expense of landlords. Want more public transit? Be prepared to secure private capital investment or have contractors bid for the job, and potentially to fight landlord(s) for the land to build it on, above, or under. Bike lanes? Plenty of studies show the benefits of cycling bear out on the balance sheet.
The urban capitalist bloc—which may be composed of figures in city government, wonks, the save-our-storefronts types, the developmentalists, or even those who truly believe that a city may be made more functional—present themselves as avatars either of “cities for people” progressivism or common-sense urban traditionalism. Cultural power may be theirs, but landlords retain the final say, ever exploiting their monopoly over their particular scrap of the earth. The city is theirs, undisputedly. We have been inside of these capitalist factions’ mutual creation for so long, we cannot help but think like them, in their terms, and to speak with their voices. There is, by design, no space in the urban debate for anyone else, for any other perspectives—and all shouted invective is modulated to serve them.
Indicative of this is the faux-universal belief in urban “vibrancy,” a bottom-up type of ineffable community character, ill-defined enough to apply anywhere. It is often treated as the sacred measure of a city or urban area’s “health.” But more often than not, this vibrancy is velocity—of capital, transactions, purchases, customers per day—and a vacancy interrupts the divine flow. But a vacancy is not actually a vacancy at all: capital is the true inhabitant. Whether this takes the form of a tenancy or not is ultimately irrelevant. “Urban vibrancy” is then a rather cruel thing to pretend to monitor, like declaring a cancer patient cured because their heartbeat is stable. Even if every storefront in New York City ends up a hollowed-out ruin, this would not necessarily stop the capitalist class from extracting profit. It may actually be part of a project to maximize profits elsewhere—for example, Vornado also owns properties in Chicago and San Fransisco. Any building, any block, no matter how beautiful and vibrant, ultimately has a price set upon it, and there are market scenarios in which anything may be extirpated. All is marrow to be sucked from the bone.
There is no chance for a resolution within the capitalist market for space—not building more, not castrating landlord power, not any market sleight of hand. The problem dwells in the form of capitalist, “financialized” private property itself: where the physical world meets the market. There is, however, a distant star of hope. Buildings, however sturdy, do not last forever. Old New York serves as a case study par excellence in the decaying urban environment, from buildings to subways to sewer pipes. As this infrastructure degrades apace, year after year, one-hundred-year storm after one-hundred-year storm, there will come a moment, or rather a litany of moments, in which the loss from repairs outweighs the profit gained in holding a piece of property. A simple calculuation—is my net operating income positive?—governs our cities. There will be a reckoning in which the longevity of Manhattan’s built environment slowly comes undone. The city and its buildings last too long for capital to make efficient use of it, but they don’t last forever.