The daily buffeting of confidence in the recovery’s resilience has demanded an unusual focus on immediate threats to commercial real estate investment conditions. Even in New York City, where improvements in property values and capital inflows have clearly outpaced peer markets, the vagaries of developments in Europe as well as conditions closer to home have necessarily called for consideration in meetings of investment and credit committees.
Apart from the drivers of near-term uncertainties, the long-term evolution of New York City’s real estate market continues apace. Physical changes in the city’s landscape, including the rise of 1 World Trade Center, offer only one perspective on the ongoing transformation. A fluid policy environment that transcends purely local considerations, a sustained diversification away from the bedrock of financial services, and competing demands on limited public resources are all germane to the assessment of the property market outlook.
Financial Services Reconsidered
The ink has dried on the 18-month-old Dodd-Frank Wall Street Reform and Consumer Protection Act. The bill’s signing into law was only the first step in a longer program of reform that holds the potential to significantly alter the business of financial services. Among the efforts still taking shape, the exact implementation terms of the Volcker Rule remain unclear. Even if this widely debated provision proves benign when it is scheduled to take effect in July, other financial reforms may not. For example, the practical enforcement authority of the Consumer Financial Protection Bureau may be impactful for retail and consumer banking profitability.
Although financial services will remain in flux for some time, employment in New York has grown increasingly less concentrated in the industry over time. Trends that negatively impact the industry—while remaining critically significant—will not be felt as acutely. Twenty years ago, financial services accounted for almost one in every five private-sector jobs in New York. That share has trended down over time and has been holding at just under 14 percent since 2009. One might posit that the multiplier effect of finance jobs, like the sector’s income, has increased over this period. In that case, the industry’s declining share of employment reflects that each finance job supports a growing number of jobs in other areas; a bleak outlook for the sector will cascade into other occupations. The data do not support this argument. Jobs have been increasing in areas that may benefit from the city’s overall agglomeration but they are generally not in occupations that are immediately adjacent to financial services.