NEW YORK CITY-In many ways, the nation’s largest office market is a microcosm of the national picture. For Manhattan, “2013 will be another average year, with greater improvement likely in the second half,” according to Cushman & Wakefield. The firm fielded both national and local experts Friday to discuss the US office landscape as it issued its year-end report on the sector, and the key takeaways for both Manhattan and the nation as a whole were similar: look to the second half of the year for leasing activity to gather steam.
Nationally, “The good news is that absorption has been positive, but slightly less positive” than in 2011, said Maria Sicola, head of US research for C&W. Although rent growth overall has been flat when both CBD and suburban markets are factored in, conversely rents have not been declining, she said. C&W cited Midtown South, Boston and San Francisco as markets that have been seeing strong rent growth; the outlook for all three is positive as the current year progresses.
In Manhattan generally and Midtown in particular, “Tenants are waiting to see what happens,” said Kenneth McCarthy, regional research director. That’s especially true in Midtown because large corporations predominate among the submarket’s tenants, and they’re waiting out the current uncertainty over Congressional action about the debt ceiling before making their next move.
That uncertainty—which was among the factors leading to a 12% year-over-year decline in CBD leasing volume last year—applies nationwide, although as CEO Glenn Rufrano pointed out, some of the question marks that hung over 2012 have been resolved. While the fiscal-cliff negotiations didn’t provide a long-term solution, “at least now we have some sort of tax policy,” Rufrano said. And while it seemed possible last year that the euro zone might eventually dissolve, “We now feel confident that the players want to maintain that union.”
Another longstanding drag on office fundamentals—job growth—will be with us for a while yet. Since the recession officially ended three years ago, US job growth has averaged about 140,000 to 150,000 per month. “That’s okay, but not enough to significantly reduce unemployment,” said McCarthy. The rate of employment growth isn’t likely to pick up until the second half of the year or, more likely, 2014.
Coupled with lackluster job growth has been equally sluggish GDP growth. In the past five recessions prior to the most recent one, GPD recovery three years out has averaged 15%. This time around, it was half that figure. “This recovery, which began in 2009, has been by just about any measure the slowest on record,” McCarthy said.
Accordingly, “risk-taking behavior” will be low across the US among office-using employers. Two sectors that are exceptions to this rule are technology and energy, and Sicola noted that rent growth and leasing activity have been brisk in cities where these tenants have a strong presence, with San Francisco a notable case in point.