NY State Of The Market: Forget Condos, Focus On Awesome Experiences
Surrounded by Midtown Manhattan’s rapidly reshaping skyline, panelists at Bisnow’s NY State of the Market made one thing clear: NYC’s populace and preferences have changed, and the industry needs to change the way it thinks about space and experiences.
No one captured this better than Mack Real Estate Group co-founder Richard Mack (left, with Arent Fox partner Mark Fawer), who—in his characteristically blunt and reserved tone—said the rise of urbanization and 10% decline in homeownership cooled his interest on condos. Instead, he and his firm are focusing on high-rise, urban multifamily.
He’s convinced the condo market could be seeing a contraction if there’s no resolution on the 421-a abatement. Landowners, he said, refused to lower prices despite losing the abatement, as they’re convinced they have future condo development sites.
But, with condo sales down 20% year-over-year and a massive pipeline, “something’s got to give,” Richard said. Either we need a new policy, landowners need to adjust their prices or we need to hit the brakes on condo development.
Richard was equally ominous on offices, saying shrinking workspace requirements (from 800 SF per worker to 250 SF) will be a watershed factor.
“There’s going to be some winners and losers,” he told the crowd. “Not every building’s primed to handle those new space requirements.”
Newmark Grubb Knight Frank EVP Scott Klau (pictured) believes the deciding factor was story, not size. Some of the Downtown Manhattan projects he's leasing, for example, are implementing outdoors spaces and cool vibes to create a narrative that attracts TAMI tenants.
Scott, MHP Real Estate Services president David Greene (pictured, left with Stewart Title Guaranty Co VP Kristin Bellouny) and ODA New York founder Eran Chen said almost every industry’s moving towards the TAMI palette.
That's why MHP’s playing up the high ceilings and classic aesthetic of 180 Maiden Lane, why Scott encouraged Blackstone to add a billiards area and café to 114 West 41st St, and why Eran’s placing less focus on dramatic Manhattan views.
“It’s a misconception that only creatives want creative spaces,” Scott said.
Colliers International NY Tri-State president Michael Cohen (second from left) was quick to remind the crowd that, while “yesterday’s setback can be today’s terrace,” not everyone’s looking for this kind of space, recalling one tenant who had no interest in a rooftop lounge.
Co-working is a differentiator that's consistently appealing and has some room to grow (although how much room was up for debate). While Scott said these spaces help smaller companies enter the market before moving on to more traditional leases, David said co-working truly captured “the American spirit” of networking and new experiences.
However, they admit they’ve seen greater vacancies in co-working spaces than in year’s past.
This focus on feel and amenities is the reason Downtown Manhattan is thriving, as massive complexes like the WTC and older buildings have the unique feel tenants are looking for.
Considering the stigma older buildings have, Michael’s amazed at this phenomenon, but Eran (right) said infrastructure flexibility is now a main focus of designers and builders, especially those revitalizing older spaces.
“With high land and construction prices,” Eran says, “you need to have enough innovation to justify those prices. If you’re paying top dollar for land and labor and just build a box, you’re not going to fare well.”
In fact, Con Edison energy efficiency team member Dave Pospisil (left) believes the exodus to Downtown gave Midtown and Midtown South offices the opportunity to similarly upgrade themselves with outdoor spaces and amenities.
This focus on experience and presence was also a key factor in the discussion of retail. Richard, again, was pessimistic, pointing out the US has six times more retail space as the UK.
“Landlords are getting ahead of themselves in terms of rents, especially in markets like the West Village,” he said. “You don’t need to be a genius to see all the empty storefronts.”
Chris couldn't deny retailers throughout the city are at a loss figuring out how to structure spaces in the new omnichannel economy. Some, he says, are “doing more with less,” leasing smaller spaces and becoming more tech savvy to push more product in front of customers with greater efficiency. Scott and Michael believe creating a sense of community and presence will help attract the market’s largest retail demographic: Millennials.
Richard said optimism is perfectly fine with him, as it promotes economic growth and creates cycles he can ride. He just warns optimists that it may not work out so well for them, should things go south.
HAKS SVP Paul Hoffman (center) joked that he has to be optimistic to still have a job. NYC will always be looking for new buildings, and a slowdown can actually help bring down construction costs as firms grow more desperate for jobs.
Check back tomorrow for more coverage on the State of the Market, with discussions on partnerships, new capital sources and tech.