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Future of New York

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What’s next for the Big Apple?

Introduction

New York’s unenviable position as an epicenter of a global pandemic cast considerable doubt about its long-term durability as a thriving center of American finance, culture, and the arts. The city lost numerous lives, suffered an exodus of residents, and saw many business establishments shuttered permanently. Tourism plunged, unemployment spiked, and the severity of the economic contraction was unlike any New York had seen before. Investors were, quite understandably, unnerved.

Fortunately, the anxiety began to wane as the year progressed and the introduction of vaccines heralded the promise of an economic recovery, albeit one subject to periodic obstacles. By the third quarter of 2021, demand for residential housing had resumed and plans were being laid for the reopening of offices and the resurrection of entertainment venues. Congress enacted a bipartisan infrastructure bill and, as the nation’s most populous city, New York will be a major beneficiary of federal largesse.

New Yorkers are exceptionally resilient. We readily acknowledge that the appearance and subsequent spread of the omicron variant has slowed the nascent economic recovery. The city’s perennial budget challenges will prompt robust debate, as will questions over public safety and criminal justice. But we reject the idea that New York’s best days are behind it and instead make a concerted argument that its unique attributes still offer investors an opportunity to benefit from its recovery. We encourage you to explore the various topics in this report and suspect that, in doing so, you will share our confidence in the city’s future.

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The future of NYC tourism

Michelle Laliberte, Thematic Investing Strategist, explains what the future holds for New York's tourism industry. How are you positioned? Connect with your UBS Financial Advisor to find out.

The future of sustainability in NYC

Amantia Muhedini, Sustainable & Impact Investing Strategist, explains what the future holds for New York's investments in sustainability. How are you positioned? Connect with your UBS Financial Advisor to find out.

A conversation with Michael Bloomberg

Watch the replay

1. A resilient city

The future of New York’s budget

Looking back

Tax receipts plunged in the immediate aftermath of COVID-19, while demand for social services and public assistance spiked higher. New York’s health system was overwhelmed as the city became the epicenter of infection. Service sector employment took a big hit.

Looking forward

Federal financial assistance has stabilized the city budget, but new labor contracts with public employees still must be negotiated. Public safety and quality-of-life issues remain a top priority for many New Yorkers as the city recovers from the pandemic.

2. A city in motion

The future of transportation

Looking back

After 115 years of continuous service, New York’s subway system suspended overnight service for more intensive disinfection. Mass transit and commuter rail facilities were devoid of riders, and aviation demand plummeted at all three major airports.

Looking forward

Demand for transportation services had begun to rebound before the emergence of the omicron variant. Toll facilities and airports have outpaced mass transit, while commuter rail will lag with many employers no longer requiring physical presence in the office every day.

3. A city at rest

The future of residential real estate

Looking back

Sales of residential property dropped precipitously in the wake of COVID-19, with luxury properties facing the steepest declines. Median rents fell, forcing landlords to offer substantial concessions. Some affluent residents departed and took refuge in other jurisdictions.

Looking forward

The rebound in residential housing has been remarkable. Rents began rising rapidly in the summer of 2021 and the pace accelerated into year-end. As the city’s social scene returns to normal, housing demand should remain robust.

4. A city at work

The changing nature of work and its impact on commercial real estate

Looking back

Office vacancies skyrocketed as mobility restrictions were implemented and employers adopted hybrid work models. Hotel vacancies rose as business and leisure travelers stayed away. New York temporarily suspended hotel occupancy taxes in an effort to attract visitors.

Looking forward

The office market will see an accelerated flight to quality. Older buildings will become functionally obsolete or be rehabilitated for residential purposes. Newer buildings with more advanced environmental systems, better amenities, and more flexible workspaces will prosper.

5. A healthy city

Trauma and recovery—the future of healthcare

Looking back

Hospitals struggled to cope with a surge in patients suffering from the novel coronavirus. Medical equipment shortages aggravated the crisis. Operating revenue declined as elective procedures were deferred. Expenses rose as critically ill patients required intensive care.

Looking forward

The omicron variant has led to an uptick in hospitalizations and renewed deferrals of elective procedures. The new variant, however, will only delay, but not derail, the recovery of the not-for-profit hospital sector.

6. A global city

The future of tourism and entertainment

Looking back

The pandemic ended a 10-year run of growth in visitors to New York. Tourism fell abruptly as entertainment venues, sports arenas, and restaurants closed their doors. The services sector of the economy took the biggest hit in employment.

Looking forward

The city’s reawakening was underway when the omicron variant triggered new mask mandates and a reversal in many return-to-work policies. However, the speed with which the tourism economy was rebounding in the fall of 2021 offers a preview of a healthy revival.

7. A retail city

The future of retailing

Looking back

Employment declines in the restaurant, retail, and recreation sectors accounted for 41% of private sector jobs losses due to the pandemic. Occupancy limitations persisted even after mobility restrictions were eased. Business owners scrambled to survive.

Looking forward

Retailers are paying close attention to changing demographics. As baby boomer demand subsides, millennials and Gen Z consumers are taking precedence, continuing the trend in favor of more experiential offerings and locally sourced and made products.

8. A financial city

New York’s future as a global financial center

Looking back

The initial upheaval from COVID-19 had few adverse impacts on financial services. The ability to conduct business from remote locations, combined with the use of more advanced technology, allowed New York’s financial institutions to operate relatively efficiently.

Looking forward

New York’s preeminent position as the center of global finance will persist but operate with fewer employees as technology applications take precedence. Fintech’s growth will supplant traditional business models as the lifeblood of the industry.

9. An innovative city

New York and new media

Looking back

Demand for digital media content soared during the pandemic even as many content productions were suspended. The need for news on progress toward a vaccine only accelerated consumers’ reliance on new media. Digital advertising revenues grew accordingly.

Looking forward

Building upon a foundation as a legacy news center, New York’s role as a digital media hub will grow. The city will attract more production facilities during a golden age of content. California technology firms will have a bigger presence in the digital media landscape.

10. An artistic city

External view
An interview with Marc Spiegler, Global Director of Art Basel

Looking back

New York’s myriad museums and galleries were hit hard by the pandemic. Museums suspended exhibitions and turned to digital content. Many galleries closed their doors, in some cases permanently, or operated only by prior appointment.

Looking forward

As the city began to reopen, galleries found a buoyant market. Pent-up demand led to a surge in sales and successful auctions, giving credence to the notion that New York’s position as a global center of the art market will continue uninterrupted.

This interview contains views which originate from outside Chief Investment Office Global Wealth Management (CIO GWM). It is therefore possible that the interview does not fully reflect the views of CIO GWM.

11. An educated city

The future of higher education

Looking back

Colleges and universities across the country sustained enrollment declines during the pandemic, and New York’s higher education institutions were no different. The enrollment declines were concentrated among undergraduates, many of whom deferred admission.

Looking forward

The projected decline in the number of high school graduates in the northeastern US will pose a challenge for regional college admissions offices. New York is already a center of higher education, but it will become more important to the local economy over time.

12. A sustainable city

New York faces climate change

Looking back

New York’s physical attributes make it vulnerable to the effects of climate change. Many capital projects designed to improve the city’s resiliency were deferred due to social distancing rules. Funds were reallocated to the provision of emergency healthcare.

Looking forward

The city will impose more stringent environmental standards on new construction projects, ranging from public improvements to private real estate developments. New York’s capital improvement program will gravitate toward climate resiliency.

How to invest

The future of New York looks a lot like the future of America. As the pandemic subsides, as it will eventually, it should lead to a revival in social interaction, a renewed appreciation for sustainable investment, and a resumption of capital investments in physical infrastructure.

Fixed income

Federal fiscal stimulus eased the pandemic-induced financial strain on the Big Apple budget, and credit spreads on the city’s municipal bonds have compressed in the past year. However, investors can still find reasonable values in the city’s taxable and tax-exempt bonds, many of which are focused on sustainable investments.

Equities

Real estate investment trusts (REITs) with a degree of concentration in the New York metropolitan area are among the ways investors can focus on the city’s commercial real estate revival. Exchange-traded funds, including fintech, smart mobility, and e-commerce, are a convenient way to invest in the transformation of the US—and New York—economy.

Alternatives

Private market investments are compelling components of a more aggressive portfolio. For investors who can tolerate a degree of illiquidity, private real estate investments or opportunity zone funds can offer high returns with some tax advantages.