7 Things We Took Away From Cushman & Wakefield and CBRE’s Q2 Reviews
This week, both CBRE and Cushman & Wakefield sat down to judge how the NYC market fared in Q1 and Q2 '16. While we gave our own rundown of the asset classes a few weeks ago, we wanted to see what was making these two industry giants hopeful or horrified.
The year started with the initial economic hubbub, C&W Tri-State region research director Richard Persichetti (right) said, causing a slight dip in jobs. But, he assured, unemployment remained low (5.3% at the end of Q2), and we should expect positive job growth in the second half of the year.
TAMI has continued its increasing occupation in Manhattan, accounting for 32.7% of all new 10k-plus SF leases signed so far in 2016, and making up 47.8% of Midtown South leases, 35.5% of Downtown leases and 21% of Midtown leases.
Of course, when any demographic starts taking over this much space, fears of a bubble start to rise. But CBRE vice chairman Ken Meyerson reminded the crowd that not only has NYC’s economy diversified, so it’s not reliant on any singular industry, but TAMI tenants are more responsible with their space than you’d think, hiring workplace strategists and making sure that they’re working efficiently.
C&W EVP Mark Weiss (right, with Justin DiMare and Howard Kesseler at a recent REBNY award ceremony) hit the Tuesday morning crowd with some worrying statistics about the Midtown office market: while subleases are reaching their lowest levels in 33 quarters, vacancy has grown to 9.2%, activity has dropped 19% and countless businesses—put off by asking rents matching pre-crash highs—are increasingly choosing to relocate elsewhere or renew their leases to avoid an increase.
This “concerning indicator” has caused many landlords to increase concessions.
And with over 31.2M SF of office space expected to come online over the next five years (for reference, Denver has 27.7M SF of office space TOTAL), many landlords will find their tenants fleeing to newer, nicer buildings like the World Trade Center.
“Prices are going to go way down for older buildings as the new breed of office fills up,” Mark said. “We’re heading towards a price correction. A healthy, natural correction, but a correction.”
Perhaps the most interesting office statistic was noted by CBRE EVP Paul Myers (pictured), who said we’re living in the Groundhog’s Day of availability rates. The overall availability rate, he said, is sitting at 11.1%, and has tracked within 80 basis points of that value for the past five and a half years.
“At this level, landlords and tenants have an even hand in negotiations,” Paul said. “We have not seen a radical shift in year-to-year pricing since 2008 or 2009.”
C&W director Joseph Cirone (seated, center) touted Brooklyn as “no longer a back-office market.”
“Simply put,” he told the crowd, “if you’re a young company and you’re looking for a good workforce and good price per square foot, you’re crazy if you don’t move to Brooklyn.”
When considering the borough’s competitive edge—a massive Millennial labor force, 13M SF of new products and space, starting rents half of those in Manhattan, improving transportation and even REAP benefits—it’s no wonder that Brooklyn had a 24.1% job growth over the last year or a 15% year-over-year increase.
In addition, CBRE sales director Travis Yuengst noted pricing across the borough was increasing, as more higher-priced supply came online and was filled by both Manhattan businesses transitioning to the bustling borough and out-of-state businesses.
But while demand has been able to meet the supply for the time being, 6.5M SF is expected to come online in the next few years, and Travis warns of a potential oversupply if both inbound and organic demand doesn’t increase.
With the exception of Lower Manhattan, SoHo and the Meatpacking District, retail rental rates are falling and supply has begun to outpace demand. But CBRE vice chairman David LaPierre (pictured) and C&W vice chairman and head of retail services Gene Spiegelman believe we’re experiencing a revolution in retail, and technology is to blame (or thank).
With mobile devices and the evolution of custom, personalized ads, we’re now living in the age of the omnichannel retail experience, Gene said, and retailers have to adapt to consumer behavior. Nowhere is that more clear, David noted, than the shrinking footprints of banks. Cutting both space and labor, banks are increasing their reliance on online banking and reducing any inefficient human interaction.
Gene then pointed to the year’s top transactions, where only three out of 10 were for soft product businesses. The other seven were for “experiential retail.” Not only are these kinds of stores on the rise, David and Gene noted, but several of them are coming to Times Square, as we reported earlier this week.
But both David and Gene believe that experiential retail won’t overtake traditional brick-and-mortar just yet.
Naturally, many of the panelists (and even some audience members) were curious how Brexit would affect NYC in the months to come. Gene said the drop in the pound would clearly be clearly felt by retail in Q4, as hotel occupancy and retail spending could reach some worrying lows.
“It won’t be as dramatic as the drop in the euro,” he said. “But the British are 10% of our tourists and visitors and spend $1.5B a year. With them being reluctant to spend or travel, it could be a sizable loss.”
C&W chairman Bob Knakal was worried that the strengthened dollar could lead to more US tourists traveling abroad rather than coming to the Big Apple. It could also do some heavy damage to exports.
The movement could also leave NYC as the best gateway city for international investors, bringing in a huge flood of capital from international investors looking for safe, quality investments.
CBRE vice chairman Bill Shanahan notes NYC is already seeing high demand from global investors, as negative interest rates and the US’s “strong employment growth, healthy economic outlook and positive business environment make it one of the most highly sought-after markets for global investment.”
While Canadians and Middle Eastern investors are growing more cautious with the devaluing loon and dropping oil prices, Bill says, both Korean and Japanese investors have increased their activity.
