Demand For New Development Fuels Strong Leasing in NYC
Today in New York City, every time you walk out your door, it seems like there is a new building under construction. Development is everywhere, which is often a good sign of a healthy market. But in a city where strong leasing activity is driven by high demand, could too much development stall the momentum?
According to the panel at CBRE’s Q3 Media Event, seen in the video above, exclusive to Bisnow, there is no danger of overbuilding office space in NYC, as tenants flock to new developments and the innovative environments that surround them. With fitness, restaurants, greenspace, transportation options and even functional art installations, the city’s new construction speaks to the evolving needs of occupiers.
Demand remains high from tenants in all industries and is fueling strong leasing numbers, specifically in hot markets, like Midtown South and Downtown. Since 2010, on average, Manhattan has added approximately 2.9M SF of new office per year. But the city is pulling inventory off the market, too—to the tune of 1.6M SF per year. When you take that into account, NYC is adding 1.3M SF annually—just 0.3% of the current inventory.
Brooklyn also continues to see strong activity, with three of the borough’s four largest deals occurring in Q3 2016 and leasing activity on par with last year’s total.
"With new construction," CBRE vice chairman and agency group co-head Peter Turchin said, "people want to use these spaces and they want to use them to the maximum of their capacity."
Infrastructure and amenities are often the first considerations when developing plans for new construction; they were the keys to Hudson Yards and the World Trade Center. In Midtown, One Vanderbilt will rise as the iconic building that will change how the submarket is perceived. And contrary to popular belief, new development is actually affordable.
While asking rents are higher, it’s important to create context. Taking into account the efficiencies that only new construction can provide—and looking at things from a cost-per-employee perspective—new construction is an attractive option for companies thinking longer term. Tenants also have greater flexibility with their space, creating the ability to elevate the overall employee experience.
"This has become increasingly important, given that everyone is competing for the same talent," said CBRE consulting group vice chairman Ken Meyerson (shown at left below, with Howard Fiddle and Peter Turchin). "New development provides companies with a tremendous opportunity to differentiate."
Even on Roosevelt Island, the trend of innovative development has emerged, as the Cornell Tech campus aims to open in 2017, offering academic and office space, an education center/hotel, housing and indoor/outdoor collaborative space.
"We’re looking to put together a mix of companies that can interact with the student and faculty population," CBRE Tri-State CEO Mary Ann Tighe said. "The future will come together with the present, as research, talent and commercialization converges."
With all of the demand for new construction, how will older buildings survive?
"Buildings priced correctly will lease," CBRE vice chairman and agency group co-head Howard Fiddle said. "Those that don’t will languish."
Owners of older buildings are now focused on investing heavily in renovations, and boosting infrastructure and amenities.
"With older buildings, you have to think, can I make it better?" Peter asked. "And if I can’t, what are my other options? Older buildings without capital will suffer in the marketplace."
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