The end of Wall Street’s reign?

Maybe the question for Wall Street these days shouldn’t be “When will things get back to normal?” Instead, it should be “Will they ever get back to normal?”

That’s one of the ideas we explore in our cover package this month, which looks at the impact of a diminished financial sector on the real estate market in New York.

Of course, Wall Street is the prime driver of the city’s economy, and its success (or lack thereof) determines how many high-end apartments get snapped up, and how much office space gets leased each year.

These days, Wall Street workers and firms are spending more cautiously than in the boom-time heyday, hindering the real estate market in the process. But could it stay that way? Are we living in an age of permanently diminished expectations?

For any real estate broker whose commission checks are half of what they were a couple of years ago, or any developer who is eking out a profit on a small rental project instead of raking in the dough on big condo towers, that’s an unpalatable thought.

But there are some sobering stats, compiled by C. J. Hughes, Adam Pincus and Leigh Kamping-Carder (who we welcome this month as our newest reporter) for a series of stories, beginning with “Big banks, big struggles”:

• Wall Street employment has come back weaker after every downturn since the early 1990s, according to New York’s Independent Budget Office.

• The number of finance professionals as a percentage of all renters in Manhattan has declined 22 percent from six years ago, a report by Nancy Packes Inc. and StreetEasy found.

• Wall Street shed three times as many jobs as other sectors as a result of the financial crisis, and will contribute only 1/20 of the city’s employment growth through 2015.

And that’s not to mention the Dodd-Frank Wall Street Reform Act — which was signed into law last year and will be enacted in 2014. The law mandates that banks have more cash reserves on hand, which could slow lending. Plus, it adds new regulations for derivatives (probably a good thing) and executive pay.

It all makes you long for the days when QE2 was just a luxury ocean liner, not the name of a Federal Reserve plan to save the economy.

But while Wall Street still runs this town, there are some signs of change on the horizon, with other groups of renters and buyers picking up the slack (albeit at lower price points). That includes a sharp increase in the percentage of overall renters who work in technology or “creative” fields since the mid-2000s. And it’s interesting that Midtown South, the one Manhattan office district that has relatively little to do with Wall Street (in comparison to Midtown and Downtown) — and which houses many creative businesses — has performed best through the downturn (see “Avoiding the rearview mirror”).

But it remains to be seen whether these sectors could ever serve as main economic engines of the city the way finance has. Everyone is looking for the next “Big Idea” to stimulate the economy, President Obama included.

Still, it’s not inevitable that Wall Street will always be the city’s dominant economic force. New York has profited wildly from Wall Street for the past three decades. But historically, Wall Street trading didn’t factor into the city’s economy in a huge way in the 1950s and 1960s.

Of course it’s also possible I’ll be writing in The Real Deal a decade from now, lamenting the devastating impact New York feels as a result of the latest bubble on Wall Street (the early 2020s version of the S&L crisis or subprime implosion).

Elsewhere in the issue, we sketch out some broad best- and worst-case scenarios for New York’s real estate market, given the economic turmoil (see “Is there heaven or hell ahead for the market?”). And we look at how low interest rates might actually be hurting the market now (see “Are low interest rates played out?”). And definitely worth a read is our profile of Howard Michaels, the head of the Carlton Group, which has arranged financing for more than $5 billion in commercial real estate deals this year alone. The story details Michaels’ scrappy, take-no-prisoners approach to deal-making, which should be recognizable to everyone who knows and loves the blood sport that is New York real estate.

Enjoy the issue.

 Stuart Elliott