Colliers: Outside Factors Force Manhattan Office Pause
- Jan 10, 2012
January 10, 2012
By Nicholas Ziegler, News Editor
Describing the larger real estate picture around the United States as “tenuous,” a new report by Colliers International says the supply-and-demand balance of the Manhattan office market will remain virtually unchanged in the first few months of 2012 due to the combined impact of the larger worldwide economic situation.
The Manhattan market does shows some signs of strength: Vacancy rates are low, at 5.9 percent at year’s end, which is half of the national average. Average asking rents led other regional office markets, climbing 10 percent in 2011 to $54.23 per square foot – a huge rise from the $48.62 posted at the beginning of the year. The overall availability rate, which measures current vacancy plus future space availabilities, increased for the second consecutive quarter, finishing 2011 at 11.7 percent – up from the 11.1 percent posted at mid-year.
“Until recently, the New York City real estate market had been consistently improving, and though the global economy is having an effect here, we expect to see additional growth by the second half of 2012,” Michael Cohen, Collier’s president in the New York tri-state region, said. “Corporate profits are strong, with many firms holding onto cash, waiting to deploy that liquidity when the outlook becomes clearer. The New York City real estate market’s short-term outlook is essentially flat, but the longer-term prospects are positive.”
The threats to business confidence stem in large part from fundamental economic contradictions that exist for the countries in the euro zone, which appear to be leading to a recession in Europe. In addition, the U.S. continues to run trillion-dollar federal budget deficits, with no structural adjustments in spending to reverse the trend. These two factors alone are enough to stifle economic growth and demand for office space.
“The employment figures add to the confusion and uncertainty about the direction of the economy, especially at the local level,” the report noted. “The New York City unemployment rate had been lower than the national rate for the past two years. However, the end of 2011 saw New York City at a non-seasonally adjusted rate of 9.1 percent, posting a higher reading than the national level of 8.2 percent. Careful analysis of the data, though, shows major inconsistencies in the national and regional numbers, leaving decision makers with even more uncertainty about the direction of the economy.”
Other highlights of the report included notes on different subsectors of the city’s regions. Midtown South, for example, saw 1.8 million square feet of leasing in the fourth quarter of 2011, compared with 1.4 million in the third. In the Penn Plaza submarket, the Class A vacancy rate has fallen to 2.8 percent. Additionally, “downtown,” the report noted, “is undergoing a fundamental transformation, meaning the historical spread between Downtown and Midtown North rent levels may no longer be applicable.”