NEW YORK CITY-Cushman & Wakefield president of US operations Bruce Mosler emceed the company's event, Breaking the Space Barrier, last night in the Metropolitan Club. Speakers examined pricing power, comparative growth, the role of the economy and development. All concluded New York's real estate had the greatest chance of future success.
“Right now there's a 3.2% vacancy rate in Manhattan,” Mosler observed in his introduction. Referencing details from C&W's report distributed last night, bearing the name of the event,he dismissed notions of the volatility of the market as a result of dotcom closings. “New York is the home of old economy business, the fundamentals of which are still very, very good. Dotcoms gave back 600,000 sf of space last quarter, and already 300,000 sf have been taken.”
“Reports of job losses in the high-tech sector may look like a red flag for New York, but the real story is the hybridization of the New and Old Economy,” observes the C&W report. “Instead of rushing to file an IPO and leasing large blocks of space in anticipation of explosive short-term employment growth, firms are pursuing more rounds of venture capital funding and are joint venturing with complementing old economy businesses. The result of this is increasing convergence between old economy firms and their high-tech counterparts.”
“The long-term payoff for New York in this new growth structure is obvious: As the headquarters capital of Corporate America and as the nation's most important link to the international economy, hybridization and convergence should benefit New York dramatically,” it reports. “In contrast to areas like Silicon Valley and Northern Virginia, which have become tech-heavy in their office occupancy and employment levels, New York remains an Old Economy powerhouse, boasting the headquarters of more advertising, publishing, financial services and insurance firms than any other US city.”
Janice Stanton, managing director of investment research for C&W, substantiated this. She showed a chart placing San Francisco at a peak; Northern Virginia and Madrid on the upswing; London, Dallas, Atlanta and Phoenix on a downswing; Bangkok and Downtown Dallas in a “trough” with Tokyo emerging; and New York staying solid. “This is nothing like the 1980s. In the destabilizing then there was an 11% vacancy rate and 15% construction. Now there's a 3% vacancy rate and 2% construction, 99% of which is pre-leased,” she said. “The market is really that tight here.”
“Even if we took a conservative view and said job growth, which leads the nation here, fell to a rate of 1.3%, lower than we've averaged in 20 years, and looked at the amount of space we would need, taking into account what is under construction now and various other variables,” she said, “it leaves a gap of 35 million sf [needed to address growth].” This is “an extra inning ballgame” she predicted. She also noted the boom is spreading west.
Richard S. LeFrak, president of LeFrak Organization, couldn't have agreed more with Stanton about the west, briefly shifting the focus of the evening to the Jersey Shore. He talked about the success of Newport Center. While he joked about his father's endless supply of capital and having initially questioned his father's sanity in proposing the Jersey Shores to break the space barrier, he threw in a few sales pitches for good measure. He also announced construction begins in January on Newport Office Center VII.
Despite his speech, the focus of the evening remained on New York and its status as a future real estate success story when compared with other US, and even global, cities. David J. Kostin, managing director for Goldman Sachs, said, “In looking at pricing power, real estate has the advantage” in this slowing economy. The current average rental growth rates are so high he noted, “In my 15 years, I haven't seen anything like it.” Noting New York more so than other markets would continue to become an increasingly owners' market he joked, “If you're a tenant in the audience maybe you should move to Texas.”
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