Special Report: The 411 on NYC
- Jan 24, 2017
What are the takeaways from 2016 for the nation’s largest commercial real estate market—and what’s in store this year?
The final numbers for New York City are coming in, and CPE looks at the highlights in the first of two parts.
Office: Amid Mixed Signals, a Strong Showing
“I think what we’re seeing is pricing compression among submarkets, asset classes, even buildings within certain submarkets.” So said Richard Bernstein, executive vice chairman of office brokerage at Cushman & Wakefield, during a panel discussion held by the firm in Midtown Manhattan last week.
Here are some telling findings that emerged in the briefings by Cushman & Wakefield and CBRE.
- Steady state: Asking rents edged up just 1.7 percent during 2016 to $72.82 per square foot. For Manhattan’s three major submarkets, that broke down to upticks of 2.3 percent in Midtown and 1.7 percent in Midtown South, while Downtown office rents slipped 0.5 percent.
- Mixed signals: All told, Manhattan registered 26.3 million square feet of office leases last year, a 6.7 percent decline year over year but still slightly above the 10-year average, according to Cushman & Wakefield.
- What’s new? Manhattan office tenants like new product, leasing nearly 2.7 million square feet in buildings developed after 2010. Open floor plans, higher-end accommodations and competitive pricing topped the list of tenant priorities, noted Paul Amrich, a vice chairman in CBRE’s New York City brokerage group, during a briefing last week.
- Less absorbent: All three major submarkets registered negative absorption, CBRE noted: Midtown (2.2 million square feet), Midtown South (1.57 million) and Downtown (78,000).
- Tenants wanted: According to Cushman & Wakefield, vacancy in Class A Manhattan office buildings increased 20 percent during the fourth quarter to end the year at 9.3 percent, up from 8.5 percent at the end of last year. Class A vacancy edged up 80 basis points, to 10 percent, and Class B buildings ended the year at 7.8 percent, a 40 basis-point increase.
- Renewals rule: The roster of the year’s biggest leases was dominated by renewals and expansions, led by several Midtown blockbusters, including UBS’ 891,000-square-foot renewal at 1285 Avenue of the Americas and Penguin Random House’s 631,000-square-foot renewal and expansion at 1746 Broadway.
- Big-league lease: Among the year’s marquee commitments for new space was Major League Baseball’s commitment to 417,943 square feet at 1271 Avenue of the Americas. The Rockefeller Group’s trophy tower is undergoing a $600 million redevelopment designed by the Pei Cobb Freed, the renowned architectural firm. Major League Baseball will occupy six floors of the 2.1 million-square-foot tower starting in 2019.
- Mixing it up: “Midtown used to be leading the market because it offered that live/ work/ play environment that everyone is looking for,” said Michael Geoghegan, vice chairman, consulting, CBRE. “Now that’s changing, and there are new developments and conversions in different areas of the city. People are building these mini-Midtowns and Downtowns to incorporate office with retail, residential and commercial usage.”
- Wider horizons: “Although Midtown continues to be a first choice in development and growth, tenants are now looking more into the entire island as a whole, instead of limiting themselves,” CBRE’s Amrich agreed. Due to the spike in renewals, landlords have become more aggressive in trying to retain their tenants, offering incentive packages to keep up with the demands.
Retail: Solid Fundamentals
Although some fundamentals moderated, New York City’s retail sector registered a generally solid year, boosted by a record influx of tourists and rising household incomes. “Traditional brands are choosing to show their product in a new way. New York is a beachhead for brands with an online presence,” explained retail specialist Andrew Goldberg, a CBRE vice chairman.
Though asking rents declined across the board from all-time highs in the previous years, leasing volume rose 28.3 percent year over year, according to Cushman & Wakefield. “The underlying fundamentals of our market are strong,” contended Steve Soutendijk, the firm’s New York City-based executive managing director for retail services.
- Flying the flag: All told, the New York City market added 1 million square feet of retail space, which is prized by brands like Nike, Lulu Lemon and North Face seeking to establish or expand their presence, according to CBRE. Late last fall, Nike signed a 15-year lease for a 69,214-square-foot, seven-level store at 650 Fifth Ave. And in July, Under Armour announced that it would take the 53,000-square-foot retail space at 767 Fifth Ave. that was occupied by FAO Schwartz until 2015. Such retail flagship deals will likely continue at the same pace this year, said Steve Soutendijk, executive managing director for retail services at Cushman & Wakefield.
- Small is beautiful: Those deals made headlines, but the number of retail leases smaller than 2,000 square feet also increased by leaps and bounds, reported Soutendijk. Also of note, food and beverage establishments made up 40.5 percent of total, an emblem of the nationwide power of the restaurant niche.
- Feeding frenzy: A trend to watch in 2017 and beyond, said Soutendijk, is the proliferation of food halls attempting to emulate the success of landmarks like Chelsea Market, Brookfield Place and Great Northern Food Hall in Grand Central Terminal.
Next: How the New York City investment market stacked up in 2016, plus the 2017 outlook