Third Quarter 2013 Real Estate Market Statistics - What Does It All Really Mean?

One of the great things about being an unconflicted and independent real estate firm in New York City is being able to identify and interpret all of the self-serving market “noise” that is issued quarterly by the larger firms and their public relations machines.  Each quarter, all of the larger firms cull their own definitions of market statistics and then try to interpret them in a manner suiting their larger agendas.  The third quarter of this year has been no different.  Witness this, according to multiple sources, the NYC real estate market is either: “sluggish”,  “strong”, “growing”, “segmented” or “adding inventory”.  What’s really going on here?  

Here are the most important takeaways:

  • Downtown, Midtown and Midtown South are all in the top ten of the lowest vacancy rates in the United States;
  • Manhattan’s asking rents average over $60/sf (Only San Francisco’s and Washington D.C’s Central Business District’s (“CBD’s”) exceed $50.00/sf;
  • The hottest submarkets include Hudson Square/Tribeca, Grand Central, Flatiron/Union Square A/K/A “Silicon Alley” and Midtown West/Columbus Circle which all experienced the larger increases in either absorption or rental rates;
  • Downtown (Lower Manhattan below Canal Street) leasing is improving due to two factors: an opportunistic spread between Midtown and Downtown rents and newly introduced municipal incentives;
  • Workplace densities continue to increase.  Most organizations are moving from offices and workstation “cubes” to bench-style and collaborative trading desks, offices and workstations are getting smaller and traditional administrative support functions are  being eliminated and/or consolidated.  Tech companies such as Tumblr, Tremor Video, Yodle and 10gen are occupying space at far higher densities than financial services, law firms and other traditional Midtown tenants and this densification has offset the increased demand for space and mitigated any widespread spike in overall demand;
  • Job growth is occuring in officeless-intensive industries: NYC’s economy has created a large number of jobs (approximately 50,000 jobs since last December), but only 300 in financial, professional and business services (the primary office-intensive industries).  High-tech jobs nationwide grew at a rate of 17.4 percent between 2009 and mid-2013, consistent with NYC’s findings;
  • Large blocks of space are leasing, as fifteen 100,000+ leases have been signed in the last two quarters.  However, as tenants densify, many large tenants are moving into new, more efficient spaces and thereby creating negative absorption;
  • Small spaces are in scarce supply in Midtown South as fewer than two spaces per block available on Lower Fifth Avenue (14th-23rd Streets) and Park Avenue South (17th-34th Streets);
  • The high end of the market is insulated from the general economy as almost fifty $100+/sf leases were signed in the Third Quarter;
  • New inventory is being created and added to the marketplace.  This factor alone will increase vacancy rates but is not reflective of any economic downturn, but rather of strong demand for office space.  Approximately 1.5 million square feet of new construction has been recently completed in Midtown and Midtown South (755K sf at 55 West 46th Street and 250 West 55th Street and 363K sf at 51 Astor Place, respectively).  Downtown added no new inventory in the 3rd Quarter however, both 1 and 4 World Trade Center are due to come to market soon.  [Other new properties in development include: 474K sf 7 Bryant Park, 1,034K sf 150 Greenwich Street, 1,869K sf 3 Hudson Boulevard and 2,052K sf 400 West 33rd Street, not to mention Bloomberg’s proposed Midtown East redevelopment plan.];
  • The Class A Central Business District (“CBD”) inventory continues to age with over half having been constructed pre-1980.  As many companies are reducing their square footages and demanding more collaborative and flexible space from landlords, the Central Business District headquarters location is facing competition from both urban and suburban submarkets and that better suit these needs.

So there you have it: statistics don’t lie, but they certainly can be manipulated.  It’s alway important to look beyond the numbers as well as understanding what the basis for comparison is beneath those numbers.  Depending on any of these individual factors, one could claim that the current real estate market is anywhere from booming to threatening.  We expect many of these short-term trends to continue into the fourth quarter where a seasonal year-end leasing spike typically occurs.  In the long-term, we expect to see a continuation of the overall trends to densification, decentralization and continued job growth in the technology and digital media industries.