Things have gotten exponentially worse on the coronavirus pandemic front. With cases soaring, some local officials are doing whatever they can to curb the spread of the virus. For New York City, that means shuttering public schools through Thanksgiving — and potentially beyond.
Once New York City reached a 3% testing positivity rate on its seven-day rolling average, Mayor Bill de Blasio made the call. While he said a plan to bring students back into the classroom would be announced soon, if the spread of the virus continues, that may not be possible.
It’s no doubt the latter fear that’s hit not only desperate parents who will now need to juggle remote learning with their own work-related responsibilities but real estate investment trusts (REITs) with heavy concentrations in Manhattan properties. In fact, following the news of school closures, New York City-focused office REITs Vornado Realty Trust (NYSE: VNO) and SL Green Realty (NYSE: SLG) both reported a notable stock price drop. Empire State Realty Trust (NYSE: ESRT), which also owns office buildings in New York City as well as retail locations, slumped as well.
Apartment REITs are feeling the pain, too. Both AvalonBay Communities (NYSE: AVB) and Equity Residential (NYSE: EQR) fell following the news, though the impact of school closures on office buildings is a lot more clear.
A bad sign for real estate investors?
Given its concentration in Manhattan office space, it’s not shocking news of school closures caused Vornado shares to decline. Earlier in the month, the REIT rallied following news of positive data on Pfizer‘s (NYSE: PFE) coronavirus vaccine. After all, the sooner the public can get vaccinated, the sooner people can get back to work, boosting the demand for office space.
Of course, a vaccine could also work wonders for struggling retailers, which comprise part of Vornado’s portfolio as well. But with schools now shutting down, potentially for the long term, office usage could decline, leaving buildings to eventually grapple with massive vacancies.
Meanwhile, SL Green, Manhattan’s largest office landlord, also stands to get hurt by long-term school closures. If workers can’t return to an office due to logistical concerns, employers will be hesitant to renew leases coming due near term.
Empire State Realty Trust had also surged following Pfizer’s coronavirus vaccine announcement — though its shares started to decline a few days after. And now, with this news, the future of office buildings is even more uncertain.
A bad sign for New York City offices
Office buildings have been sluggish since the start of the pandemic, but the situation in New York City is even more dire. A September analysis by Cushman & Wakefield (NYSE: CWK) found that office buildings as a whole may not recover until late 2022. But if New York City schools remain closed for a while, it could set the city back well beyond that date.
The Millionacres bottom line
Investors in office REITs will need to prepare for a prolonged slump as New York City in particular grapples with the impact of the pandemic. Though Manhattan is no longer being dubbed the epicenter of the outbreak, from a fiscal standpoint, it’s one of the more precarious cities investors will need to watch.