City's Still Tops for Businesses

NEW YORK CITY-With limited supply and the office leasing market continuing to tighten in Manhattan, national and international firms still view New York City as the place to hold business, said Colliers ABR executives Tuesday.

At a Colliers ABR breakfast briefing entitled "New York Commercial Real Estate Market At a Crossroads: Risks and Rewards," executives said even with the threat of a cooling economy, New York City hasn't felt the impact and chances are it may not. "New York City to some extent is insulated from what goes on elsewhere in the country," said David Hoffman Jr., principal and executive managing director of Colliers ABR. "We are very bullish on New York City for the long term."

Contributing to their positive outlook is low vacancy rates that are near where they were prior to Sept. 11 and the limited supply of office product. "All the supply coming online in Manhattan in the next two years is basically spoken for," said James Frederick, principal & executive managing director. "You need to have a ready waiting inventory of space to keep prices low."

Big block space is also scarce in New York City further driving the price escalation. Only 20 spaces of 100,000 sf or larger, mostly in Midtown, are now available. During the same time last year, 27 blocks of 100,000 sf space were available. Average asking rents rose sharply, more than 19% since the first of the year and the highest since the $61.48 per sf in April 2001. Overall Midtown asking rents are now at $70.30 per sf, a record high.

Although the gap in rent for prime office space in New York City compared to other international cities is closing, New York is still considered a bargain with an average asking rent of $60 per sf. Asking rents of class A product in Hong Kong is currently at $200 per sf. Tokyo it's at $150 per sf. And in London asking rents are $175 sf, Frederick said.

In addition, New York City's expected 2% to 3% job growth over the next few years would require eight to 10 million sf of office space to house these new employees. However, during the 1990s New York City built the least amount of office space since the 1930s. "You can't develop that much space quickly here on this island," Frederick said.In the retail market, rents on 5th Avenue between 50th and 59th streets are also breaking records and are not expected to stabilize, said Michael Hoffman, senior managing director, Colliers ABR.

With anchors like Saks Fifth Avenue and Bergdorf Goodman on each end of the avenue, landlords are now receiving $1,000 per sf from luxury retailers. That price will climb to $1,200 in the next year. "There's no ceiling at that level," Michael Hoffman said.

Elsewhere in the city, coffee and tea retailers are trying to compete with the ever so popular Starbucks. The latest entrant being the retailer Juan Valdez. "It will be an issue of quality. The new entrants will try to say their product is better than Starbucks, but whether it's the vender on the street or Dunkin Donuts, New Yorkers love coffee," Michael Hoffman explained.