New York’s COVID Comeback

The Big Apple is much recovered from the pandemic, even if smaller cities are not.

COVID-19 and Black Lives Matter riots put big holes in America’s downtowns beginning in 2020. Corporations went to remote work for well over a year, which meant very few people were commuting to downtown offices. This killed off some supporting retail. There was a general population exodus from central cities to the suburbs or so-called “Zoom towns.” Homelessness spiked.

These led to fears of what was dubbed the “urban doom loop.” Remote work and population loss would create a loss of tax revenue and vitality, leading to tax increases and more people and businesses leaving in a continuing downward spiral.

New York City was one of the places that was fingered for the doom loop. It was the first city the pandemic hit hard, and was the center of national pandemic media for months. New York’s economy is driven by the lower Manhattan office core, one of the largest such business districts in the world, so remote work was devastating. Hundreds of thousands of people moved from the city. Then, as President Joe Biden opened the Southern border, Texas Gov. Greg Abbott’s busing of migrants to New York created another crisis. A spike in crime, including a number of horrific subway killings as well as attacks in tourist hotspots like Times Square, added to the pall.

But five years on, New York looks to be resurging as one of the cities best adapting to new realities. The city’s population has started to rebound. Tourism is also back, with 64 million visitors in 2024, the second highest level of all time. Hotel rates have spiked to record levels. Subway ridership is back up to 75% of pre-pandemic levels. The number of murders has fallen. The migrant crisis seems to have abated as President Trump shut down illegal crossings.

Critically, there are signs New York’s office market is coming back to life. A Partnership for New York survey conducted earlier this year found office attendance at 76% of pre-pandemic levels, with many employers planning to ratchet up attendance requirements. Office vacancy rates are down while leasing is up. A Cushman & Wakefield study found that there was 8.4 million square feet of new leasing activity in the first quarter of this year, and the Wall Street Journal trumpeted that “NYC Offices Are Back.”

Pre-pandemic, there was a lot of talk of the disconnect between the coastal elite cities and flyover country. The pandemic seemed to offer an opportunity to flip this script. The population exodus from the biggest cities like New York benefitted not just traditional Sunbelt growth destinations but many smaller metro areas and even rural places as well.

But as we proceed into the new post-pandemic normal, some of those trends have moderated. And as New York recovers, we may even see a bigger gap emerging with many smaller city downtowns. As Alex Armlovich noted in The Atlantic two years ago, people were worrying about the wrong downtowns. It’s the downtowns of non-boomtown flyover cities that are most at risk of long-term harm from pandemic-era changes.

The Journal wrote about “the real estate nightmare” unfolding in downtown St. Louis. Louisville, Kentucky has experienced significant challenges as well. In places like these, business is moving to self-contained developments on the periphery of downtown, leaving challenged towers in the core. Louisville’s Michael Graves-designed Humana Building, nationally regarded as an architectural gem, is now completely vacant, for example. Cities like Cleveland are successfully converting offices into residential buildings, but this likely represents a permanent drawdown in office activity. Many of these cities are leaning into events and tourism to keep people coming in, which prompted economist Richard Florida to recant his previous opposition to stadium projects.

These cities, which always had weaker downtowns from a business and street life perspective, will likely see an extended period of weakening in the future. Older office space will be converted to residential use, and they are much less likely to see an emerging industry like AI revive their business sector.

The emerging landscape of downtowns now suggests that at least some elite coastal cities will successfully adapt to the post-pandemic world. New York is already getting there. San Francisco will probably get there; it saw five million square feet of leasing activity in the first half of this year. Sunbelt boomtowns may also thrive in terms of office activity. Goldman Sachs is building an 800,000-square-foot building in downtown Dallas, for example.

But most other downtowns may see a permanent impairment in their business activity, shifting much more to a lower-value model based on being a residential neighborhood and tourist zone rather than an office market. They will be less economically dynamic, which could actually exacerbate the gap between the big winners and the rest.

New York has big advantages that helped it recover. It’s America’s biggest of big cities, a place that really does run on density of activity and interactions. It has real agglomeration effects across multiple sectors. There is no good substitute for it. There’s essentially unlimited demand to be there at the right price.

The post-pandemic office market has also seen a shift in demand towards new, high-end space with lots of amenities. While New York has lots of older office buildings that need renovation or conversion to other uses, it also has a lot of new, cutting-edge space such as the Hudson Yards development. The huge One Vanderbilt tower in Midtown opened early in the pandemic. New towers for JP Morgan and Citadel are going up. Other cities have nothing like this inventory of high-quality products.

This doesn’t mean that even New York is without its problems. There are still issues with crime and high-profile violence, such as a mass shooting at Blackrock’s headquarters in July. New York’s lucrative international tourism business is still down significantly. Rents and the cost of living have gone up from already high levels, which the city has been unable to address and which helped fuel a surge in far-left politics, with socialist Zohran Mamdani the leading contender to be elected mayor.

New York’s pre-pandemic success was built on top-quality leadership from former mayors Rudy Giuliani and Michael Bloomberg, but the caliber of political leadership in the city has seen a steep decline in recent years.

Still, people should not let their legitimate unhappiness with a socialist surge cause them to ignore the real recovery that has happened in the city. New York, at least economically, looks like it is on an upswing once again.