The Coronavirus and Commercial Real Estate: Will New York’s Arts, Entertainment and Culture Industries Collapse, Leaving Their Venues and Hotels Abandoned?

This is a guest post by Larry Littlefield. 


Ever since the Port Authority of New York and New Jersey published its seminal report on the importance of arts, culture and entertainment in the New York City economy these activities, instead of being thought of as a social benefit affluent societies can afford, have been thought of as part of the economic base.

The same may be said of sports stadiums, convention centers and casinos elsewhere in the United States.  In fact, had I written this post a year ago, the subject might have been an art, culture and entertainment bubble in New York City, with more venues than the city’s economy and population could support.  And an eating and drinking places bubble nationwide, with Americans running up their credit cards unsustainably to eat out.

Then the coronavirus pandemic hit.  It will eventually end, but whenever and however that comes to be, travel and in-person gatherings for the purpose of arts, entertainment, culture, sports, leisure or otherwise will be among the last activities to recover.  The question is whether New York City’s arts, entertainment and culture industries will collapse entirely.  Although a retrenchment was coming in any event, I would argue that these activities will be hit less hard here than elsewhere, and NYC’s share of the national total may in fact, increase.  In part because the demand for space and place cannot be understood separately from its price.

To consider where we are going, consider where we have been, starting with Local Area Personal Income employment data from the Bureau of Economic Analysis, by place of work.  Unlike most employment data you see, this source includes the self-employed, a growing share of the workforce in general, and long a large share of the workforce in arts, entertainment and culture.

From 2001, the first year data is available using the new North American Industry Classification system, to 2018, the most recent year available, total private sector employment increased by 24.6% in the United States and a stunning 40.3% for in New York City.  It is stunning because NYC was already fully developed at a high density in 2001, and could not expand by building out.   Employment in the Arts, Entertainment and Recreation sector expanded by a greater 48.0% in the United States and 61.4% in New York City.  And employment in the Accommodation and Food Services sector increased by 39.5% in the United States and an even more stunning 84.9% in New York City – nearly doubling.

Within New York City, these sectors, and private employment in general, have long been concentrated in Manhattan.   The 2001 to 2018 period, however, saw spectacular employment growth in the outer boroughs, especially in Brooklyn.   Compared with the 24.6% increase for the U.S. as a whole, total private employment increased by 26.8% in Manhattan and 78.9% in Brooklyn – nearly doubling.  Arts, Entertainment, and Recreation sector employment increased 48.0% in the U.S., 36.2% in Manhattan, and 162.9% in Brooklyn – far more than doubling.  And Accommodation and Food Services employment increased by 39.5% in the United States, 70.1% in Manhattan, and 183.1% in Brooklyn — nearly tripling.  Even on an absolute job gain basis Brooklyn nearly matched Manhattan, with an increase of 471,000 in total employment compared with 609,408, and 33,098 in Arts, Entertainment and Recreation employment compared with 34,625.

The Arts, Entertainment and Recreation sector had accounted for 3.0% of total NYC employment in 2001, but that increased to 3.6% of New York City employment in 2018.  And the Accommodation and Food Services sector had accounted for 5.0% of total employment in 2001, but that had risen to 6.8% of the total in 2018.  This may imply that New York City’s leisure and hospitality employment had expanded beyond the capacity of the rest of the economy to support it.

But New York City’s employment in these sectors wasn’t just supported spending by residents of the New York metro area.  Tourism surged as well.  Estimates of tourist spending tend to be self-serving and exaggerated, but anecdotal evidence suggests the number of people visiting from all over the world soared to unprecedented heights, and expanded to additional parts of the city.

The city’s surge in live entertainment marked a reversal.  The first large-scale shift from in-person art, culture and entertainment experiences to at home experiences, with the invention of television, saw many Broadway theaters and movie palaces abandoned.  The City of New York even passed zoning in Times Square, allowing developers to build additional office floor area if they built or renovated theaters, to prevent the live theater industry from disappearing.  Handicapped access and fire safety rules were also loosened for renovations, because the old theaters couldn’t meet them.

During the past 30 years, on the other hand, new sports stadia were built in every borough of the city other than Manhattan, where Madison Square Garden and the Javits Convention Center received $1 billion renovations.   Broadway boomed, with virtually every theater in Times Square renovated and in use.  The city also renovated the grand Kings Theater in Flatbush and Paradise Theater on the Grand Concourse in the Bronx as live performance venues. They had been vacant for decades.

Meanwhile, a number of mega-rich Wall Street types, thinking themselves latter-day Medici, endowed the construction of additional museums, adding to the already large number of institutions the city has to support.

The Celebrate Brooklyn Festival, once a quiet venue where locals could walk in just before showtime, became so popular that many shows had long lines just to enter the grounds.  Opportunities to donate as members “sold out.”   Where once there had been performances by Afro-Americans from the other side of Prospect Park, there were now performances by globally-famous actual Africans.  The city paid to upgrade the venue to attract bigger acts.

For those who prefer a more intimate and less formal experience, in-migrants from the rest of the country created smaller performance venues and festivals.

Under a new director the Brooklyn Museum of Art, which had been a local-oriented museum where you took the kids for art classes, sought to expand its global reputation with big shows and a fancy new entrance.

And the Brooklyn Academy of Music, an organization that already had an international reputation that attracted patronage from Manhattan, expanded into a Cultural District with multiple performance venues that needed to be filled and financed.

New York City once had three remaining soundstage studios for recording movies and television shows:  the Silvercup Studios and Kaufman Astoria studios in Long Island City, Queens and the old Vitograph Studios in Midwood, Brooklyn (the latter is now closed and replaced by housing).  But in the past 30 years, new major studios have opened in the Brooklyn Navy Yard, and outside the city in the suburbs.  With the miniaturization of video and sound recording equipment, moreover, there are now many, many small facilities located throughout Manhattan, Brooklyn and Queens.

With this huge expansion of venues, there has been a huge increase in the number of people in creative occupations residing in New York City.  The best data for capturing detailed data by occupation at the local level is the Equal Employment Opportunity (EEO) file.  I happen to have NYC data on arts, culture and entertainment occupations from the 1980 census, and adjusting for a classification change as best I can for latest data (2006 to 2010), I created this spreadsheet (new data for 2016 to 2020 will be coming out late this year).

The data shows that the number of employed NYC residents in Media, Arts, Entertainment and Culture occupations increased from 112,890 in 1980 to 172,280 in 2010, a gain of 59,390.  By 2016 to 2020, that figure probably had increased significantly more.   The number of Writers, Artists, Performers and Related increased from 79,095 in 1980 to 128,110 in 2010.  The biggest increase was in the number of Designers, by 48,055, and the only decrease that can with certainty not be ascribed to a classification change is for Dancers and Choreographers, down 635.

In total, the number of employed NYC residents in Media, Arts, Entertainment and Culture occupations increased by 52.6% from 1980 to 2010, including gains of 62.0% in the broad Writers, Artists, Performers & Related category, 21.0% for Editors, Reporters, PR Specialists and Announcers, 220.0% for Archivists, Curators, and Museum Technicians, and 348.1% for Athletes and Related Workers.  In 1980 most of the athletes apparently lived outside the city, even if they performed in the city, but it appears that by 2010 that had changed.  More detailed data shows an increase of 113.2% (868) in the number of Radio, Television, and Other Announcers, 128.7% (9,051) in the number of Authors, and 94.8% (11,953) in the number of Actors, Producers and Directors.

Nationwide, there was already talk of a restaurant and hotel bubble long before the coronavirus hit.  For restaurants, on the supply side, cheap labor, as Millennials flooded out of school and found much lower wages and diminished opportunities in the wake of the Great Recession, cheap money, as the Federal Reserve kept interest rates at zero for nearly a decade, and (in much of the country) cheap and available space, as e-commerce caused retail stores to close, sent workers, investors and landlords seeking alternatives.  One alternative turned out to be more restaurants.  On the demand side, increasingly less well off Americans ran up their credit cards to continue to eat out.  In 2017 a bursting bubble was predicted…

There will not be massive simultaneous closures — different cities will be affected at different times, some places may hang on years, often propped up by personal savings or an owner who either doesn’t care about losses or refuses to see the writing on the wall.

Locally those building hotels denied there was a hotel bubble back in 2016.

New York’s hotel market has mostly produced negative headlines over the past year amid fears of oversupply and declining international tourism. But Norman Sturner thinks the worries are overblown.

“The fact of the matter is that New York has 54 million (annual) visitors,” he said Thursday morning at a panel discussion hosted by the Deal Flow Network and moderated by The Real Deal’s publisher Amir Korangy. Sturner said any conclusion that a minor drop in the number of visitors would cause major problems for the hotel market is “just silly.”

One could even argue there had been a cruise ship bubble, nationwide and in the New York City.  Once metro New York had just one cruise ship terminal, the Passenger Ship Terminal on the West Side of Manhattan, now known as NY Cruise.

Along with the Circle Line and the Hudson River Day Line, for one-day boat rides.

Now it has additional cruise ship terminals in Brooklyn and Bayonne, and additional boat rides leaving from various points in Manhattan.


And now all those restaurants, all those hotels, all those museums, all those studios, and all those live entertainment and culture venues have been shut down for more than three months.  Some many not re-open for two years, while others will be required to only serve half as many customers as before.  In any event, thanks to a further collapse in average incomes, especially among later-born generations, they may only have half as many customers, even after the virus is gone.  One might think that New York City, with so much having previously been gained, now has the most to lose.

But I don’t agree.

First, when it comes to the Accommodation and Food Services sector, New York City’s employment was not really that large compared with the overall size of its economy, and some its recent growth was just catching up with the rest of the country.  Returning to BEA data…

In 2001, New York City accounted for 2.8% of U.S. private sector employment, but just 2.1% of U.S. employment in the Accommodation and Food Services sector.  This data includes the self-employed, and thus includes NYC’s many independent restaurant proprietors.  In 2018, New York City accounted for 3.1% of total private sector employment, but just 2.7% of total employment in the Accommodation and Food Services sector.  Still less of it here than elsewhere, despite high demand from tourists and visitors from the rest of the metro area.  And thus less to lose.

Shifting to Employment and Wages data from the Bureau of Labor Statistics, for data specifically on Hotels…

One finds that in 2001 Hotels accounted for just 1.3% of total New York City private employment, compared with 1.7% of private employment nationwide.  And in 2019 Hotels still accounted for just 1.3% of total private employment in NYC, compared with 1.6% nationwide.  Shifting to the metro area level only increases the disparity, because metro New York Hotel employment is concentrated in NYC in general, and Manhattan specifically.  Just 1.0% of Metro NY private sector jobs were in hotels in 2019, compared with 1.6% of U.S. private sector jobs.  The situation back in the early 2000s was similar.

Employment isn’t the same as the number of rooms, as a hotel can cut staff if rooms are empty.  Historically, however, New York City’s hotel room count has also been relatively low, and its room occupancy and room rates high.   A small number of hotel rooms and large number of visitors led to expedients such as corporate apartments, boarding houses, and people renting spare rooms to travelers– long before AirBNB came into existence.

Until very recently, in fact, New York City had fewer hotel rooms than Chicago, a city one-third the size, as well as fewer than tourist-oriented metros such as Las Vegas and Orlando.

New York has 106,000 hotel rooms open and currently ranks 5th place among U.S. cities for number of hotel rooms, according to the hotel industry data company Smith Travel Research.   Las Vegas is the hotel room leader of the USA with 169,100 hotel rooms and Orlando is the other top destination in vacationland with 119,800 hotel rooms. Chicago and Washington D.C. currently have more hotel rooms available than New York City, but that will change soon.  The 12,600 hotel rooms in construction in New York City will move the city ahead of Washington D.C. and Chicago to become the US city with the largest number of hotel rooms behind Orlando and Las Vegas.

That should not be surprising in that New York is the nation’s largest city, at the center of the nation’s largest metro area, with a very large number of business travelers as well as tourists and other visitors.

According to USA Today, among the cities seeing the most activity are popular perennials like Chicago and Washington D.C., but also somewhat unexpected destinations, like Detroit, which has 954 rooms slated to open in 2016, and 4,200 rooms in the longer-term pipeline.  New York, however, was number one, with 13,583 rooms under construction and slated to open in 2016 and beyond.

According to this source, that would bring the NYC room count to 131,000 compared with 114,400 in Chicago, with New York still far lower on a per capita and per job basis.

New York City also has more possible alternative uses for hotels than in other places.  These include SRO residences for young adults, perhaps complete with cheap but simple rooming house meals (rice and beans, pasta and beans, bean soup and bread).   And corporate suites, with meeting rooms and hotel rooms, for companies from elsewhere that want a place for workers to live and work while on temporary on projects in the city.  The Waldorf Towers had long served that market, but has since gone luxury residential.

Apartments in the Towers range from one- to six-bedrooms and are available for short- or long-term lease. They have in-room Stockinger safes and business stations with fax/printer/copy machines and some apartments have terraces, full kitchens, dining rooms and maids quarters.

The coronavirus could actually expand the corporate suite market, for companies whose employees generally work from home elsewhere, but sometimes need to spend a week or month in a central location to work together, and/or work with those from other firms, here in the city.  Arranging financing or planning a marketing campaign, for example.

As for restaurants, yes they were heading for a contraction, here and elsewhere, because people simply cannot afford to eat out as often as they had been.  And the coronavirus has forced some of them to learn to cook.  In 2018, according the Consumer Expenditure Survey from the Bureau of Labor Statistics, the average household in metro New York spent $4,821 on food purchased for consumption at home, and $3,885 on food consumed away from home, with 44.6% of that spending on food away from home.  Nationally, $4,464 was spent on food consumed at home, and $3,459 on food away from home, for 43.7% of food spending away from home.  Consumer spending on eating and drinking places could fall permanently.

For the next few years, however, the same virus that shut restaurants down might cause the amount of space per restaurant customer to double, as a result of social distancing.  Could restaurants and bars stay open with half the customers?  Yes, if no other competing uses are found for the space, and they end up paying half the rent.  And if they are also employing half the staff.   And if they only pay half their business loan, or a new restaurant inherits the prior operator’s equipment and fixtures at half the price.  In that case, eating and drinking places might occupy as much space in New York City as had been the case before the coronavirus, and with more space comfortable seating for their remaining customers.

On the Arts, Entertainment, Culture and Recreation side, New York City does have a disproportionate amount of jobs relative to the overall size of its economy.  BEA data shows in 2001, when NYC accounted for 2.8% of overall U.S. private sector employment, it accounted for 4.3% of Arts, Entertainment, and Recreation employment.  And in 2019, when NYC accounted for 3.1% of overall U.S. private sector employment, it accounted for 4.7% of Arts, Entertainment, and Recreation employment.

One might assume that a shift from live Broadway shows and live music to Netflix and Spotify at home would reduce the city’s share of national employment in these categories.  But the reverse is as likely to be true.   It may be that a shrinking market forces the remaining live entertainment to consolidate in the one location with a large enough local population from which to collect an audience.  That would be New York City.

Consider the Central Place Theory of Walter Christaller.

Commercial centers, according to the theory, form a hierarchy based on how commonly goods and services are bought.  The most commonly purchased goods and services, food for example, are located in a large number of small, widely dispersed commercial centers, to minimize travel time.  Less commonly purchased good and services are located in fewer, larger commercial centers serving broader areas.  It is only in the one largest central place, the one with the largest local population and therefore the largest market, that the most specialized, unusual, rarest and infrequently purchased goods and services are available.  Only there is the market large enough to support a business with a very narrow specialty.  People and firms elsewhere who require such specialized goods and services have to travel to, or order from, the single top ranked central place to get them.  In the United States, that is New York City.

During the 1990s, while working at the New York City Department of City Planning, I collected long-term employment data for the Citywide Industry Study.  I happen to still have photocopies of County Business Patterns data for NYC and the U.S. for 1962.  What struck me at the time is how many of the industries that were most concentrated in NYC relative to the nation as a whole had “Miscellaneous” in their name.  That was even more the case for Miscellaneous Not Elsewhere Classified.

At the time, New York City accounted for 7.2% of U.S. private employment and 11.3% of total U.S. private business establishments, a much higher share than today.  But its share of employment, establishments or both was higher than that in Apparel Manufacturing Not Elsewhere Classified, Miscellaneous Furniture & Fixtures Not Elsewhere Classified, Leather Goods Not Elsewhere Classified, Fabricated Metal Products Not Elsewhere Classified, Miscellaneous Manufacturing, and more specifically Manufacturing Industries Not Elsewhere Classified.  Along with Wholesalers Not Elsewhere Classified, Miscellaneous Retail Stores Not Elsewhere Classified, Miscellaneous Personal Services, Business Services Not Elsewhere Classified, Schools & Education Services Not Elsewhere Classified, Nonprofit Member Associations Not Elsewhere Classified, and Miscellaneous Services Not Elsewhere Classified.

This older New York, faded into the background in the “luxury city” era, is a place where oddballs, eccentrics and obsessives with very rare, particular and specialized interests and skills can find both a market and a community.   Along with immigrants and out-groups.  Including those working in the arts, entertainment and culture industries.  They will continue to come here seeking opportunity.  Miscellaneous people not elsewhere classified doing miscellaneous things.

And if the nationwide market for live entertainment shrinks in the wake of COVID-19, metro New York’s large population will continue to provide the opportunity for an audience.  Even without the added demand from tourists.  Consider what is happening in Italy.

As pandemic restrictions were lifted this past week, with Italy opening its borders to EU travellers and allowing inter-regional travel, the country’s world-renowned museums and cultural sites also reopened. With only a trickle of EU tourists arriving, Italians have a historic opportunity: the chance to see their own masterpieces free from throngs of tourists and by booking just days in advance, rather than weeks or months…

Normally, the Vatican Museums see an average of 20,000 people stream through its galleries each day — and in peak times, as many as 29,000, said director Barbara Jatta.  Reservation numbers for the initial days of reopening, by contrast, hovered between 1,000 and 2,000. The three-month closure has cost the Vatican an estimated $38 million in lost ticket sales. Jatta admitted with a chuckle that she misses the crowds. But for locals, she said “this is the moment of a lifetime to come visit the museum.”

The Uffizi Gallery in Florence is also encouraging Italians to visit. Before the pandemic, as many as 10,000 visitors passed through famous Renaissance galleries in a day. The first week after reopening, reservations and daily visits averaged about 1,000 a day, reaching a peak of 2,100 the first Sunday after reopening.

If New York City’s Art, Culture and Entertainment venues have to rely on local demand, local audiences, local performers, then revenues will be lower.   Perhaps too many venues have been added for this future level of demand, but that is a sunk cost now, and going forward the venues may become available at lower rents to smaller productions with smaller audiences.  Perhaps eventually those audiences will be in wider seats.  Broadway has become dominated by large-budget revivals of sure-fire hits popular with tourists.  Perhaps even there, it could become easier to stage new works with narrower appeal and less certain success.

With fewer tourists, at least for a while, the incomes of the city’s art entertainment and culture workers may also be lower.  But that will likely be the case for their rents as well. It was only a few years ago that, despite an economic boom, a spate of articles predicted that artists and the industries they staff would be forced to leave New York City, due to rising rents.

You’ve likely heard some version of it before: “Move to Detroit!” “Move to L.A.!” Even Patti Smith famously warned artists, “New York City has been taken away from you […] Find a new city.” (And rents have only gone up since she made that pronouncement back in 2010.) So, should you?

“Honestly, don’t move to New York,” advises Rosie, 29, a native Brooklynite who moved to Chicago in search of big city living that didn’t require working six jobs to make rent. “Move somewhere smaller, move somewhere cheaper, move somewhere cooler where the cool is less prepackaged. The New York that I grew up in, to the best of my knowledge, is a place that no longer exists. The city is tired.”

In a couple of years, on the other hand, a new set of artists and entertainers may find that they can now afford to live in Manhattan or close-by areas of Brooklyn, instead of being pushed further and further out.  Close enough to walk or bike to work, and everything else they need to do.  Something that may be useful given that more than two decades of cashing in the future is likely to cause subway service to collapse.

The best-case NYC future, thanks to two decades of cashing it in by those in charge and those who supported them, appears to be the 1970s without the crime.  (Without the crime because the criminal generation, in its street-crime prone young adult years back then, is old now, and pillaging on a grander scale).  Sky high taxes, devastated public services, to benefit those who cashed in and moved out, but cheap real estate.  But the 1970s were a very creative time for arts, culture and entertainment in New York, despite the crime.  And inner New York City would still remain the largest, most creative village in the world.

Creative young people have always flocked to the great city, if they could afford it.  As long as rents – commercial and residential – adjust downward to offset diminished activity and income, they will do so again.

I could watch that intro, filmed in the 1980s when I started my career in NYC, 100 times in a row, and just wish the titles didn’t block the view, and the movie never started.

Larry Littlefield