NEW YORK CITY-With no successors to 11 Times Square or the new Goldman Sachs headquarters on the immediate horizon, construction starts in the city’s office sector could dip below $500 million for the year, the New York Building Congress says in a report issued Thursday. That’s about 80% less than the $2.6 billion seen in 2009, and is also well below the $1.3 billion in starts the year before. However, building activity in the sector is likely to climb gradually out of the trough over the next few years.
Following the opening of the Goldman Sachs tower at 200 West St. and the substantial completion of 11 Times Square, “the projects we hoped would replace them, such as the Gem Tower and 250 W. 55th St., are on hold,” Building Congress president Richard T. Anderson says in the report.
With the exception of Towers 1 and 4 at the World Trade Center and Tishman Speyer Properties’ Gotham Center project in Long Island City, “new office construction is at a virtual standstill, and this sector is subsisting on work generated by companies that are either renovating in place or relocating to other existing space.”
Alterations and renovations to existing properties accounted for 99% of the $162.3 million in office construction year to date, the report says. Last year, the dollar value of alterations over a 12-month period was about 10 times as large, but at the same time there was also $900 million in new construction. If the four-month YTD figures for 2010 were to be extrapolated to the entire year, the citywide tally of new office construction would be about $2.1 million.
However, the report says that historical precedent as well as recent employment and leasing trends give cause for hope. There was approximately 23.3 million square feet of negative absorption in Manhattan during 2008 and ‘09, a trend that was reversed in the fourth quarter of ’09 with a net absorption of 1.3 million square feet. Based on the first five months of this year, the Building Congress estimates that another three million square feet of space will be absorbed this year.
Similarly, the volume of leasing activity is up compared to ’09. The Building Congress projects at least 21 million square feet of office space will be leased this year, based on the first five months of data; it was 16.5 million feet the year prior. Meanwhile, the availability rate in Manhattan declined from 14.3% in March to 13.9% in May.
Developers added 35 million square feet of office space to the Manhattan skyline between 1985 and 1990, compared to 12 million square feet added between 2005 and this year. “New York is fortunate in that we did not overbuild in the office sector during the recent economic boom, unlike in previous cycles,” Anderson says in the report. “This should ensure that currently available office space will lease up and rents can rebound relatively quickly as office employment recovers. It may take a few years to get there, but once vacancy rates return to 6% or 7%, we likely will see an improvement in new office building starts.”
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
