Moody’s Predicts NYC Rents will Fall as Much as 21% in 2020

Real Estate In-Depth | August 2020

New York City

NEW YORK—Moody’s Analytics released its new forecasts for commercial real estate rents and vacancies on Aug. 17 and predicted that office and retail rents will drop sharply due to COVID-19 in 2020 and beyond.

Noting that the office property sector was already experiencing downward pressure on the usage intensity of office space even before the COVID-19 crisis, this sector is now burdened with a wide-scale shift towards remote working as offices remain closed. Moody’s expects the office sector to be particularly hard hit in the coming years.

National vacancies will rise past historic highs within the next few years. Moody’s projections show the national vacancy rate will rise to 19.3% in 2020 before surpassing the 1991 record high of 19.7% to reach 19.9% in 2021 and 20.0% in 2022.

The office sector is also projected to incur significant distress in effective rents, which we expect to fall nationally by 10.4% in 2020—and as much as 21% in New York and other markets.

“Many companies continue to push back returning to the office, with some already planning to telecommute until 2021. Whether the increased availability of remote working infrastructure will have long-term effects on office demand remains to be seen,” said Victor Calanog, head of CRE Economics at Moody’s Analytics. “However, the long-term nature of office leases means that it may take some time for vacancy rates to reflect the real trend.”

Retail properties are expected to fare even worse than office properties, with their effective rents expected to fall by 11.1% this year given wide-scale store closures and the rising threat to the sector posed by e-commerce.

By contrast, industrial and multifamily properties are likely to fare better. Vacancies in those sectors are still projected to rise and effective rents are expected to turn negative, but the impact will not be as severe as on retail and office properties, Moody’s Analytics states.

Moody’s Analytics, Inc. is a subsidiary of Moody’s Corp., which reported revenue of $4.8 billion in 2019. The firm employs approximately 11,200 people worldwide and maintains a presence in 40 countries.