Delta Is Pushing Back Office Returns, Not Stalling Real Estate Deals

As of last week, the delta variant accounted for a total of 83% of New York City’s Covid-19 cases, driving a rise in the spread of the coronavirus after widespread vaccinations seemed to have brought the pandemic close to an end earlier this summer. 

But as the city has introduced new vaccine mandates and several large corporations have pushed their official return-to-office date back, commercial real estate activity hasn't slowed, top brokers in the city told Bisnow this week, and they don't think it will in the future, unless business and gathering restrictions return.

“I don't think that there has been any impact of the delta variant on the New York City investment sales market,” JLL Chairman of New York Investment Sales Bob Knakal said in an interview. “I think that the only impact it could or would have is if it impacts the way the government implements shutdowns or curtails business or curtails the behavior of people.” 

The delta variant, which emerged in India in December, has propelled an uptick in cases, hospitalizations and deaths in the U.S. since it first arrived here in late spring. 

While vaccines hold up very well against the variant, it has caused thousands of so-called breakthrough infections, causing vaccinated people to catch this bug more easily than other iterations of it. But two doses of either Pfizer or Moderna are 96% effective in preventing against serious illness and one dose of Johnson & Johnson is 88% effective against preventing serious illness, according to the Mayo Clinic. 

The growing number of cases nationwide — almost all among the unvaccinated — has prompted a precautionary response from some major businesses with offices in New York: Google, Apple, Uber and American Express, have pushed their return-to-office dates back to October while companies like Amazon and Lyft have pushed their return dates to next year.

Still, a Morning Consult poll revealed that most back-to-office plans remain intact. Other businesses, including real estate companies such as Related Cos. and The Durst Organization, have told employees to get vaccinated or find a new job, and New York City will require people to show proof of vaccination for indoor activities beginning this weekend. 

While cases are rising, it is nowhere near the pandemic’s surge last fall and winter. On one day this January, New York City hit its highest total average: 300,000 cases. Over the past seven days, an average of 960 people across the five boroughs have contracted Covid-19, according to the city’s Department of Health and Mental Hygiene. 

Nearly 74% of New York City adults have gotten at least one dose of the vaccine and 67% are fully vaccinated, according to the city, significantly curbing the chances of serious cases or deaths rising to what they did in previous surges. During the most deadly day of the pandemic in April 2020, 815 people died from the virus in a single day. Six have died around the city from the virus on average over the past seven days. 

Major New York real estate investment trusts haven't documented any recent consumer behavior changes that could impact their bottom line in upcoming quarterly reports, but other publicly traded companies have. Disney World and Southwest saw an increase in cancellations and fewer people are making reservations on Airbnb, Yahoo Finance reported.

The only way commercial real estate activity would be negatively impacted as a result of the variant is if consumer confidence is damaged by a huge swell in delta-related fatalities, prompting another shutdown, B6 Real Estate Advisors partner and Vice Chairman Thomas Donovan said. But both are very unlikely to happen, he added. 

“I think people are so frustrated with what has happened,” he said. “I think that for delta to really affect us, [case count] will need to be significantly higher than it was last December during the second shutdown or the first shutdown in March of 2020.” 

Increasing investment sales and leasing activity don’t appear to be stopping. Leasing volume in July was 15% higher than the month before, according to Colliers. CBRE Senior Vice President Ramneek Rikhy said her clients are not delaying their lease plans because of the variant. 

“Most of the touring activity I'm seeing is for longer term deals starting in 2023 and beyond,” she wrote in an email. “The advent of vaccines went a long way in giving everyone hope and the ability to assess long-term plans.”  

Retail leasing is not slowing down either, Ripco Real Estate Vice Chair Esther Bukai said.

“Retailers that actually put their expansion plans on hold … have decided to re-enter the market in Manhattan,” she said. 

Investors, particularly private capital buyers, have been more active in the market since the spring and they haven't slowed down, Knakal said. Investment sales deals are closing in large part because people are coming back to the city, Compass Vice Chair Adelaide Polsinelli said. 

“That's how deals are made,” she said. “It's by the interactions and the serendipitous meeting that you'll have in the street going from one point to another point — you'll bump into a colleague or you'll bump into a client on the street —  and it starts a conversation.” 

An enormous surge in residential real estate activity over the last quarter shows the population return is real. What's more, the city — including the real estate industry —  is more prepared to ride out storms caused by the pandemic better than it did when the disease first took hold, Polsinelli said. 

“It’s become a known variable,” she said. “We know that Covid is here. What we're dealing with is not so much of a surprise as it is a setback.” 

New York City's high vaccination rate will help bolster its recovery, said leasing expert Lori Albert, co-leader of Cushman & Wakefield's New York research team. 

"The momentum will continue to build obviously," she said. "The more people that get vaccinated, I think the better it will be."