Exclusive Q&A: Colliers' Michael Cohen Talks Rising Rents In Midtown And How He Ended Up With A Tony
What’s the balance between supply and demand in the Manhattan office market? And how much further could the creative office craze really go? To get some answers, Bisnow sat down with Tony-award winning broker Michael Cohen (yes, you read that correctly) to get his thoughts on the state of the Manhattan office market. Michael is Colliers' president of NY-Tri State, and will be speaking at our upcoming 4th Annual Workplace of the Future event June 21.
Bisnow: What’s a trend you’re watching particularly closely in the Manhattan office market right now?
Michael: What we’re seeing is a rapidly vanishing sector of the market I’d would call the “value sector” in Midtown right now. There definitely seems to be a dwindling amount of space at what I would call the “bottom of the middle” of the market there.
In other words it looks to me like the majority of midtown tenants today, with the exception of the occasional hedge fund or high profile investment bank, are looking for "value," but a lot of the "value" supply under $70/SF is basically vanishing. It’s remarkable that $70/SF is now the dividing line between the "value" and upper class of product in Midtown, but that’s where it is.
A year ago there was space in the $60/SF and $50/SF range, but $50s/SF supply has vanished and $60s/SF supply is in the process of vanishing. While the statistics show a gradual increase in new inventory in Midtown, the inventory that’s coming online is mostly more expensive than that which is being leased. As a result, while we’re seeing inventory grow, we’re also seeing rents rise. I think you’ll continue to see that dynamic play out, as demand for good value remains robust in that market.
(Above: Oxford and The Related Cos' Hudson Yards)
Bisnow: And what about the rest of the Manhattan market? How is the tightening in Midtown affecting other submarkets?
Michael: Well, it’s not sending people scurrying to other geographies. There is a pipeline of space in Midtown that will replenish what’s being absorbed. The number of tenants relocating into Hudson Yards or the Trade Center from Midtown will free up space there, but that pipeline is a year or two away and it’s not helpful if you’re in the market today.
Bisnow: What’s your take on the balance between supply and demand in Manhattan more generally right now? Some market watchers have raised fears about all the new supply coming online soon, while others are adamant supply continues to lag demand. Where do you weigh in on that?
Michael: I don’t buy the theory of a continued undersupply. Look, New York has a pattern, and the pattern is repeating itself—and probably always will. As the market gets tighter, the development community seeks to create new inventory and the lead time on that inventory is always several years. Once momentum has built though, it’s very hard to stop. Once the steel is ordered you can't un-order it. And what we do every cycle is we build more than we need.
But it takes a long time for that momentum to build, and to get to that place where the market adjusts. We are repeating that now. That doesn't mean we’re going to be overbuilt tomorrow, and I would say the development community has more discipline today than they had in previous market cycles. I still recall the ‘80s bust, when empty office towers dotted the West Side of Manhattan.
Today we’re not building on spec so much anymore, but the development community is rushing to deliver inventory, and we’d be naive to think it’s not going to have an impact. The game we’re all playing right now is trying to call the moment in time when that impact will be materially felt. Without a crystal ball, I’d say that date is in the foreseeable future, but it ain’t here yet.
Bisnow: Would you feel comfortable giving a rough estimate, say three-to-five years out?
Michael: If you’re looking for me to tread on safe ground, I would say sometime between now and 2020 we will see the top of the market in the rearview mirror.
(Above: Two Trees Management's Domino Sugar Factory)
Bisnow: Fair enough. Changing subjects, what’s your take on the rise of creative office in the city right now? There’s a lot of big projects going up in Brooklyn currently, and some are even saying before too long we could even see accounting firms and big banks eyeing that kind of space. In your view though, what’s the endgame?
Michael: To me it’s old wine in a new bottle. For years now we’ve been seeing the development of so-called “creative office,” starting with the technology tenants like Google, or even before that, Double-Click. Does anyone even remember Double-Click?
Anyways, those types of spaces were known for the foosball tables, and the ping pong tables, and the wide open spaces with meeting areas, and the baristas and whatnot. Of course that has now become conventional among certain types of tenants, especially in technology and media. And the number of types of tenants for which it is conventional has certainly grown.
But will it grow into accounting, legal and the like? I think not. I think it will have an impact and I think people will think of ways that partnership-type tenants with high executive to non-executive staff ratios adopt certain aspects of the creative work environment, but I don’t think they’re going to be tearing down the walls completely.
I don’t think law firms are going to look like Google anytime soon, or in my lifetime. But you will see larger, communal areas with café-like amenities, or areas for impromptu meetings start to become more commonplace. Yes, it has an impact. But the whole world isn’t changing into one homogenous workplace.
Bisnow: Changing subjects again, can you talk a bit about what you do outside of real estate? What are some of your hobbies?
Michael: My hobby is theater; I’m a Tony-award winner. I was a producer for the Best Musical back in 2014, Gentleman’s Guide to Love and Murder.
Bisnow: Wow, congrats. I’m not familiar with that one though… Can you describe the plot?
Michael: It was based on the same book as the Alec Guinness movie Kind Hearts and Coronets. It’s the story of how a distant heir to an earldom decides to kill off all the relatives that lay between him and the palace, so to speak.
Bisnow: Kind of like a Hamlet situation?
Michael: Not quite... Hamlet was the heir to the throne and was avenging his father. This guy was on the periphery and decided to serial kill his way into the middle. But he’s a very likeable serial killer.
Bisnow: Interesting. And how’d you get into the theater-producing game?
Michael: I’ve always been a theater lover, but I started investing in theater about 10 years ago when one of my tenants, at Stone Productions, produced a little show called Wicked. You’ve probably heard of that one right? She then allowed me to invest in some of their subsequent projects like the 15th Annual Putnam County Spelling Bee and Next to Normal, and I’ve kept at it since then. One of my most recent investments won 11 Tonys on Sunday night.
Bisnow: Wow, congrats. And that was?
Michael: That was Hamilton, you’re supposed to know that one.