BisnowTV: New York Real Estate Morning Update - presented by EisnerAmper
This is the week of Nov. 7, 2016. Here are last week's top New York commercial real estate stories:
Starting off with our top story...
The Urban Land Institute’s 2017 Emerging Trends in Real Estate report, which surveyed 1,500-plus CRE pros, ranks Brooklyn as the US's top office buyer's market by a 10% margin, with 53% of its survey respondents advocating purchasing offices in the bustling borough, rather than holding or selling.
This confidence is somewhat surprising, since the report itself hints at a potential slowdown in job and Millennial population growth and doesn’t factor in the wave of office supply hitting the market in the next few years.
Although Brooklyn players weren't sure if this marked the beginning, middle or end of Brooklyn's office boom, they believed the borough still had the strength to last through several upcoming disruptions, like the L train shutdown.
In Leasing News...
A Shaky Office Market Has Landlords Desperate To Keep Tenants. Manhattan leasing activity remains sporadic, and landlords are going to extreme lengths on their retention efforts, according to reports from Savills Studley and Colliers International.
Overall Manhattan leasing activity fell slightly from 8M SF to 7.6M SF last quarter, putting leasing on pace to hit 30M SF by year’s end. Although this is a better result than 2015’s 28.1M SF, it’s a step down from 2013 and 2014.
October was slightly better than September—as availability rates have risen. Midtown, for example, saw its Class-A availability rate jump to its highest point in years, and it continued to rise over the course of October. Despite this, Midtown asking rents remained flat (and even rose in October). Oh! and Midtown had nine of the quarter’s top 10 leases.
Desperate to keep their existing tenants, owners have begun adjusting lease terms, lowering asking rents, raising renewal concessions, increasing build-out packages, and essentially going all out with their build-outs with high-end glass and wood (despite the sharp increase in costs), even using swing spaces to keep important tenants in buildings as renewed spaces are built.
REITs and short-term asset holders were the first to adopt these tactics, Savills Studley writes, but longer-term asset holders have also begun to do so. The firm notes that the cost of replacing a tenant is high, and many landlords face the risk of an extended lease-up period.
Short-terms leases could continue to increase as businesses grow cautious over (rather ironically) the office market’s strong conditions. Although rents are expected to decrease in the next year or two, Savills Studley doesn’t expect a 2008, post-Lehman-type crash.
In Economic News…
According to the official statement released following its Nov. 2 meeting, all the Fed needs to raise rates in December is “some” further evidence that inflation and employment are on the right track.
The Fed opted to hold rates steady in November, a move largely expected by investors, according to Bloomberg.
Friday’s US jobs report may show enough gains in the labor market to justify the Fed raising rates in December, as the news pushed the odds of a rate increase at the Fed’s December meeting to 78%, the highest level since March.
A strong employment report could "authorize the rate hike in December,” says MCP Asset Management economist Hiroki Shimazu, making it almost a certainty the Fed will raise rates unless there’s mayhem in markets following the presidential election.
In Consumer News...
Major Shifts In Consumer Behavior Drag Down Hotel and Retail CRE Pricing. While the industrial, multifamily and office real estate sectors are thriving, major shifts in consumer behavior have taken a toll on hotel and retail real estate, driving down prices, according to Ten-X chief economist Peter Muoio.
The dominance of e-commerce and the growing prevalence of omnichannel shopping is hampering the retail sector, making large department stores and restaurant chains wary of expansion, as overall pricing for the sector was up a mere 0.7% in October and 6.5% year-over-year.
However, it’s the hospitality sector that has taken the biggest hit. Overall pricing dropped 0.3% in October and 8% from a year ago, fueled by a surge in traditional supply and internet-based competitors—also known as Airbnb.
Things Get Even More Complicated For St. John's Terminal At Public Hearing last week. Councilman Corey Johnson expressed his distaste for a new plan and had a condition that Pier 40 not sell any more air rights throughout his neighborhood. The developers claim the plans are changing over concerns of a flagging luxury residential market, but councilman and subcommittee chair Donovan Richards said the developers’ commitment needs to be "in stone" before the council votes on the rezoning.
The original plan—consisting of five luxury condo buildings, affordable housing, retail, and possibly hotel or office space—is only possible with the $100M purchase of Pier 40’s 200k SF of air rights. A portion of these funds was to be put into escrow after Hudson River Park Trust approves the sale, and the rest delivered after the deal closes.
If the sale is completed, the pier will have 383k SF of unused air rights remaining, which Hudson River Park Trust president and CEO Madelyn Wils says will be used to build revenue-generating office space.