4 Trends Shaping The New York City Commercial Real Estate Market
New York City continues to grow. With a population of over 8.6 million, the Big Apple is one of the world’s most active real estate markets. As 2019 approaches, New York City and its surrounding suburbs are facing new challenges and opportunities.
Bloomberg and Berdon explored these local issues in depth in their 2018 New York City Real Estate Market Survey, in an effort to obtain insight into how commercial real estate professionals view the current market. A total of 152 commercial real estate professionals participated in the survey.
The results pointed to several New York-specific market insights. From emerging submarkets to interest rates, here are the four most prominent trends shaping New York real estate.
1. Implications of the Tax Cuts and Jobs Act
A year has passed since the passage of the Tax Cuts and Jobs Act. The exact impacts on commercial real estate have yet to be fully realized, but industry professionals remain optimistic. In New York City, 70% of professionals who responded to the survey expect the legislation to have a positive impact on the market. One policy that CRE professionals are particularly optimistic about is the Opportunity Zones program, which offers tax benefits to investors and developers who invest in designated low-income communities.
“There is significant interest in the prospects of the program for New York City and the surrounding suburbs,” Berdon partner Marc Fogel said. “It will likely attract investment dollars in various pockets of the metro area that are primed for redevelopment.”
2. Increased Concessions
Several large-scale projects like Hudson Yards and One Vanderbilt are changing the city’s skyline. With new, Class-A office developments come high-end amenities and modern enhancements like fitness centers and cellular connectivity solutions. As a result, landlords of older office buildings are feeling the pressure to keep up.
“Over the next couple of years, several high-profile office buildings will be completed with new modern spaces and technology,” Fogel said. "Landlords of existing, older office buildings are now providing larger rent concessions and tenant allowances when signing new leases to compete with the upcoming supply of office buildings with more modern amenities.”
3. Investment and Development Opportunities in Emerging Submarkets
In November, Amazon announced it would develop a new HQ2 campus in Long Island City. While the news came as a surprise to many, it is part of a larger development trend in New York’s outer boroughs. An increasing number of developers are seizing opportunities in submarkets across Brooklyn, Queens and the Bronx. Lower rents, paired with access to transit and walkability, have made these submarkets particularly attractive.
Manhattan is still the most popular borough for investment and development opportunity, but the others are catching up. When asked which area presented the most potential in terms of commercial real estate, 29% of respondents identified Manhattan, while Queens followed close behind at 21%.
When compared to 2017’s survey results, Manhattan dropped three percentage points in popularity, while Queens increased by six. Berdon’s survey was conducted before the news of HQ2 broke, and developers may have already shifted their perspectives on the borough.
4. Rising Interest Rates
Interest rates are on the rise. The question is: Who will be most impacted? According to the survey, 78% of New York City real estate professionals believe interest rates will trend upward over the next 18 months.
“There is some caution that refinancing and financing properties will become more expensive,” Fogel said.
While most companies that fall within the commercial real estate sphere are expected to see some sort of impact, the goal is that these increased interest rates will lead New York, and the rest of the U.S., toward a stronger economy.
This feature was produced in collaboration between Bisnow Branded Content and Berdon. Bisnow news staff was not involved in the production of this content.