NEW YORK CITY—In examining the Bloomberg administration's $68.7-billion preliminary budget for 2013 and long-range financial plan for 2016, an analysis released by the New York City Independent Budget Office shows that the five boroughs will demonstrate stronger gains in employment than in income, resulting in a mixed picture for commercial real estate. According to the report, IBO projects that the city will gain 435,000 jobs over the next five years, despite continued weakness in Wall Street revenues, salaries and tax collections for the city.
Kenneth J. McCarthy, senior economist and senior managing director of research at Cushman & Wakefield, tells Real Estate Forum that while job growth will depend on the pace of the overall recovery, office vacancy rates will continue to trend lower and rents will trend higher in Manhattan. As of year-end 2011, C&W reported that Manhattan's overall office vacancy was 9.1%, down from 10.5% in 2010.
"New York City right now has one of the lowest vacancy rates in the country," McCarthy says. "To see healthy job growth in an environment with already-low vacancy rates—along with no new construction due for delivery in the short term—is pretty positive. Overall these numbers suggest that the market should continue to do well."
According to the IBO, three-quarters of the job gains are projected for education, healthcare, professional services, leisure and hospitality, social assistance and wholesale and retail trade—industries that typically have modest wage levels. Conversely, the report forecasts that the high-paying securities sector is expected to add only one out of 37 new jobs over calendar years 2012 through 2016.
Facing headwinds from the global markets, tax revenues are expected to grow, but not at the double-digit gains that occurred before the downturn, IBO says. With a subdued Wall Street, the report predicts that tax revenues will rise 4.3% to $41.4 billion this year and by an additional 5.5% to $43.6 billion in 2013.
Despite the softening, McCarthy says financial services is "still a vitally important industry in New York" that represents a third of all the office space users in the city, but a diversification of the economy is also helping to stabilize the market.
"If you look over the past 15 or 20 years, the growth in the city has been in professional services, in education and health, in leisure and hospitality," he says. "During this recovery, the biggest sector for growth has been professional services. It does speak to the fact that New York is not just a financial town any more."
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