TURNAROUND & TURKEY
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|2011's just around the corner—and according to figures from Grubb & Ellis economic guru Bob Bach, it looks like we're heading for improvement, with no predicted double dip, low interest rates, and low inflation.|
|Bob (right, with NY market leader Joe Swingle) says to expect job growth to increase to 125k jobs per month in '11 and 150k per month in '12—but there's risk in Japanese-style malaise, deflation, and long-term debt growth, he says. Apartments will recover first, with an expected 4.3 million potential new renters and a continuously declining homeownership rate. Industrial sees opportunity with global trade coming back and firming retail sales, but there's a risk of a trade war, with competitive devaluation against the US dollar. Retail did better than expected in the recession, and consumers are spending again and responding to promotional pricing (we hear there's a few on Friday). Flip side: risk of long-term consumer deleveraging. Office is the last to recover, with job creation relatively slow. Overall vacancy is 17.2% (with shadow space, 22%), and he's expecting a 1% annual drop over the next few years.|
|New York is recovering more favorably than the rest of the US, says Joe. After the office market peaked in '07 at $80/SF with an 8% availability rate, we've bottomed out and are now at $62/SF with a 14% availability rate—we've already seen a 5% increase in rental rates. Availability with continue to improve, estimated at 12% next year. If the city follows cycle trends, we'll see peak rents back in '14, he forecasts. There's still a bifurcated market, as a dozen prime buildings are still commanding over $100/SF. The ask-take gap continues to close, and he estimates we'll see numbers between 15% and 18% next year.|
|And now for Bob's annual Turkey Day analysis. He says that rising commodity prices due to demand from China and other emerging markets have yet to impact the cost of Thanksgiving dinner. The American Farm Bureau reports that a dinner with all the trimmings to feed 10 people is $43.47, a 1.3% increase from Thanksgiving '09 (food prices jumped 1.4% over the past 12 months, and is barely ahead of the 1.2% gain in the Consumer Price Index). That means farmers are doing better than office and industrial landlords, according to Bob. (Plus corn and soybeans aren't demanding concessions.) They've been unable to push through any rent increase this year; the Q3 average asking rental rate for a SF of US office space fell from $26.60 full-service to $26.10 year-over-year, while a SF of industrial space fell from $5.38 to $5.35 triple net. However, sales prices rose: Irrigated cropland in the territory served by the Federal Reserve Bank of Kansas City increased in value by 9.6%, office by 13.2%, and industrial by 8.2%.|