CBRE's Q4 2016 Year-End Wrap-Up — Plus A Look Ahead

“On the day of the presidential election, the mood shift went from concern to business as usual to optimism, in less than 48 hours.”

That was the opening statement at CBRE’s Q4 2016 NYC Media Briefing, delivered by Spencer Levy, Americas Head of Research. Spencer added that the new administration is seen as an opportunity to stimulate faster growth across the country. A general feeling of optimism prevails for both global and local economies as we look to the year ahead. That bodes well for commercial real estate, since growth — and jobs — are the factors that fuel our industry.

2016: A Solid Year for the New York City Office Market

Nicole LaRusso, Director, Research & Analysis, Tri-State Region, was on hand to deliver a year-end overview, noting, “2016 was a solid year for the New York City office market. Overall conditions indicate a somewhat subdued but healthy market — conditions we expect to continue into 2017.” She also noted some key trends that unfolded during the past year:

• Robust concession packages. Concession packages are at an all-time high — many TI allowances are above the $80 mark and offer a year or more of free rent. This points to increased competition among landlords for tenants as well as rising tenant costs.
• Strong demand for new and “like new” space. In 2016, 2.66M SF was leased in “new towers” (built since 2010). Strong activity in repositioned buildings was evident as well, notably 1271 Avenue of the Americas, 425 Park Ave and 390 Madison Ave. Significant reinvestments have given these assets new life — and created real competition for new construction.

2017: A Reason for Optimism

CBRE’s panel of experts also looked at key topics driving New York’s office, retail and debt markets for 2017.

Office

Vice chairmen Paul Amrich and Michael Geoghegan agreed that New York is not only resilient, but continues to reinvent itself, paving the way for new opportunities to better accommodate evolving corporate demands. Geoghegan pointed to the depth and scale of the success of new developments and new neighborhoods in our city. Beyond efficiencies, new construction delivers the functionality that today’s corporate occupiers need in the work environment.

“Whether it’s happening on the West side, Downtown, or throughout pockets of Midtown and Midtown South, new construction is healthy,” Amrich said. But what happens to the space vacated by tenants moving to new product? “Owners with long-term vision are reinvesting in their buildings to bring them to their next natural chapter, driving a better quality of stock across the board, no matter the vintage.”

Retail

Andrew Goldberg, vice chairman for CBRE’s Retail Services Group, was on hand to provide insight into the retail market. Retail performed well in 2016 and some key trends will continue:

• Experiential retail is in. Goldberg pointed to Cirque du Soleil teaming up with the NFL, National Geographic and North Face as just a few examples of how retailers are adapting to the customer’s need to touch and feel — and bond — with brands.
• Athleisure is the hot retail industry. Athleisure is replacing luxury as a driver for retail business. Goldberg cited how Nike, Under Armour, Adidas and Lululemon are expanding their presence in order to execute experiential concepts that bring their brands to life for the customer.
• An influx of quick service, farm-to-table food concepts. Sweetgreen, Dig Inn, Tender Greens and Sugarfish are quality food alternatives able to take advantage of small space opportunities across the city.

In sum, Goldberg was positive about the year ahead. “It’s a great time for opportunity for retailers … they now can make deals that make sense for them.”

Debt

What are the hot topics for debt in the year ahead? “Risk retention, retail and hotel—and most of all, construction financing,” said Tom Traynor, executive vice president, Institutional Debt Advisory for CBRE. “I can’t think of a single major New York City owner/developer that does not now have a debt platform or the ability to do debt.” In response to a question about a change in the market due to the recent increase in interest rates, Traynor said that it is too early to tell. “Based on how low rates were, rising 60 basis points isn’t likely to be that material.”

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