Independent Budget Office predicts "slow and fragile" economic recovery (which must give developers pause)

Anyone building in New York City--private projects, at least--must be an optimist, because the crystal ball is very cloudy.

The New York City Independent Budget Office yesterday offered Outlook for the City’s Economy: A Slow and Fragile Recovery, noting that, despite increased vaccinations, the rise of new variants of the coronavirus "suggests the city’s economic recovery will remain slow and fragile."

The outlook is worrying:

The largest impacts on employment and earnings in the city have been concentrated among industries that rely heavily on consumer behavior and tourism. Meanwhile, real estate sales have been depressed for most of 2020, particularly in the commercial real estate market. In the short run, personal income grew due to a large increase in government aid, while other income categories including wages and proprietors’ income have declined. All of these factors suggest the possibility of a substantial realignment to the local economy even after the threat of the virus subsides, which may be accelerated by longer-term population and labor force changes triggered by the crisis.

It will take five years, until 2025, to restore city employment to the levels seen at the end of 2019, the IBO predicts. That said, the service sectors will improve, while leisure and hospitality jobs are expected to recover only to a 23.2 percent loss compared to 2019.

Ripple effects for Atlantic Yards/Pacific Park?

The big question includes office work, and the corresponding market for residential and commercial real estate:

But as employers and employees have become more comfortable with remote working arrangements, demand for both commercial and residential real estate has declined. Permanent changes to employment-based location decisions could serve to encourage a shift toward employment in sectors that can more easily accommodate employees living outside of the city, at the expense of employment in local services for the city’s resident population. All of this remains uncertain and will be affected by the speed and efficacy with which the impacts of the pandemic can be overcome.

Government payments bolstered income, while job losses were concentrated among lower-wage positions not amenable to remote work.

That said, while Brooklyn may offer lifestyle advantages over Manhattan for those looking to work from home, if a larger percentage are not commuting in the first place, New York City loses a certain number of residents to place where they can buy more space for their buck.

Which means that market-rate apartments become less attractive, and less likely to "pencil out," at least if

What about real estate?

The word for real estate is uncertainty:

IBO estimates total taxable real estate sales of $61.3 billion for 2020, down from $99.8 billion in 2019 and the lowest sales on record since 2010. Additionally, the split between residential and commercial sales, which has been relatively even in recent years, has shifted more heavily toward residential sales, which made up about 60 percent of total sales in 2020. This sharper reduction in commercial sales reflects the ongoing uncertainty about the future of business operations and needs in the city. As discussed above, businesses in consumer-facing sectors have seen the largest losses in employment and earnings, and many existing jobs in professional and technical sectors have shifted toward alternative working arrangements, all of which puts downward pressure on demand for commercial real estate. Conversely, there has recently been a rebound in residential sales albeit at discounted prices, suggesting a resilience in the demand for New York City housing. As the nascent economic recovery strengthens, IBO projects that real estate sales will slowly begin to rise toward pre-pandemic levels, reaching $79.6 billion in 2021, $86.7 billion in 2022, and averaging $94.1 billion in 2023 through 2025.

Note that, as the New York Post reported yesterday, the city, at least, has resumed construction spending for affordable housing.