NYC CRE To Flatten In 2017 Before Dropping In 2018, Experts Say
While the office market took a slight dip last year, most in the commercial real estate expect the status quo to hold in 2017 as the market braces itself for a possible recession in 2018.
"There doesn’t seem to be a lot of growth in the market right now. I'm cautiously optimistic there's going to be more of the same in 2017," Rosenberg & Estis partner Michael Lefkowitz told Bisnow this morning. "You’re going to be flat in terms of what’s going to happen in terms of growth."
Lefkowitz pointed out that, while new office supply filled up easily last year, it mostly took tenants that were already in NYC, many of whom downsized their offices or are fitting more employees into smaller spaces.
CBRE director of research and analysis Nicole LaRusso, pictured below from a Bisnow event back when she worked for the Alliance for Downtown New York, also expects the market to hold steady before the fall.
"The market was in the fast lane in 2015, and in 2016 we downshifted to cruising pace," she said in an email. "We’ll stay on pace through 2017 — that 'off ramp' to a slowdown won’t appear until 2018, when we’d expect the market to feel the effects of a mild recession."
LaRusso said she expects more owners of old office buildings to start capital improvements programs to try to compete for the stagnant pool of tenants, dropping millions on system, lobby and façade upgrades.
Although leasing will be flat, Lefkowitz expects early 2017 to be a boon to the investment sales markets. He said the trend of commercial real estate and private equity firms becoming alternative lenders to banks will only grow as banks continue to ask for higher loan-to-value and loan-to-cost ratios.
"I have a number of clients who largely sat out in the fourth quarter of 2016," he said, "focusing more on their capital fundraise with the intention of really being in a position come 2017 to be able to be in the market."
On the residential side, experts agree that the luxury condo drop-off is already in full effect and will only deepen in 2017 as construction delivers and the supply problem gets worse. Keller Williams NYC agent Mirza Avdovic, above, said he's already seeing condo building owners selling in bulk; the last time that happened was in 2009, when the effects of the recession were still deeply felt.
"The biggest change I’m going to see is the $2M-$4M range, anything under $4M is going to see a big increase," Avdovic said. The buyers who were snatching up $10M condos' budgets haven't changed, but their appetites have.
"Say they have a $10M budget," Avdovic said. "Instead of buying one condo for $10M, they’d rather buy two or three now. That’s been something I’ve been seeing with my clients personally, they’ve been buying more properties for the same budget."
While Benedict Realty Group president Daniel Benedict also said "it's going to be a flat year," he expects even more activity from foreign buyers, who already bought 45% of office buildings sold in Manhattan last year.
"Japan is back in a big way, looking to re-enter the market," Benedict told Bisnow today. "I think the problems some of the political uncertainties in the Western European countries, with no growth or slow growth in some of these — maybe contraction — are driving a lot of the capital here."
Benedict also predicted pain for the hotel market, which applied for 31% more construction permits in 2016 than 2015, and good times for the shrinking (in size, anyway) NYC industrial market.
"I think that warehouse and distribution is going to continue to get strong," Benedict said. "There’s a lot of pressure on it. Properties were seeing $10-$12 per SF are now asking for $25 in Brooklyn and Long Island City near the transportation hubs."