Hi All,
We hope that you are well and enjoying this work shortened holiday week. I personally have been enjoying the summer and have been doing some cycling and open water swimming in a few favorite spots.
The commercial real estate market had been strong as vacancy rates continue to fall and rents climb. The overall Manhattan vacancy rate fell from 12.2% to 12.0% in May according to a broker report while Class A vacancy tumbled from 11.0% to 10.8%. Net absorption was positive for the month though not quite as strong as April (691,440 SF versus 794,799) according to the same report. Overall asking rents increased from $48.45 to $48.91 while Class A rents increased from $59.65 to $60.17. This is the eight straight month of monthly increases.
Landlords have been emboldened as a result of these positive trends and are expected to further raise asking prices. The question that tenants and real estate brokers are asking is whether rents will continue to rise in the face of a struggling national economy.
The Manhattan unemployment rates remain below the national average. New York City unemployment remained unchanged at 8.6% in May versus April. The national average was 9.1% in May and increased from 9.0% in April. Thus, Manhattan’s economy remains relatively strong.
The Manhattan market is unique as a result of its dependence on financial services. It is estimated that financial service firms and related businesses comprise 40% of office market occupancy. Financial services firms had been hiring last year, however, many are now in the process of cutting jobs. According to Reuters, financial sector layoffs are up 21% this year with more cuts likely. Additionally, these cuts seem to be permanent. Demand for office space has traditionally been led by financial services hiring. So, the question is how long positive pricing trends can be sustained in the face of Wall Street downsizing.
http://www.wallstreetandtech.com/career-management/231000180
My thought is that that the momentum in the market may be sustained for a period of time by firms other than financial services. For example, the tech sector has been very strong and LinkedIn.com recently signed a seven year deal for the entire 25th floor of the Empire State Building amounting to 31,000 square feet. The rapidly growing Mountain View California based firm increased its office space more than 5 times according to a recent Crain’s article. Education, healthcare and sciences are other industries where job growth is expected. However, the longer term picture could be negatively impacted if Wall Street hiring remains sluggish.
http://www.crainsnewyork.com/dcce/20110505/12/real_estate/122/deals_active/2581840
We are finding that much of the value that we are adding as corporate real estate advisors is in workspace planning. Some tenants have been able to hire more employees while reducing their real estate expenses through employee seat sharing and mobility (working remotely from home). For example, if 10% of your employees worked from home full time, total seat requirements could be reduced by 15-30%.
http://www.cresapartners.com/blog/tag/mobility/ The last couple of months have been excellent for my team and I. We are working on assignments for one of the nation's largest telecom companies, a top fashion company, a leading technology and media company, a prestigious law firm, a large hospital, a national retailer and a fitness club. We are working with professional services firms and other firms including banking, investment, insurance, law, media, technology, fashion and design and health care as well as with retailers.
Please feel free to contact us for a “gratis” consultation. Twenty minutes can save you twenty percent or more on your real estate costs.
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